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Analyst Blog

On Oct 17, 2013, Zacks Investment Research maintained the Neutral recommendation on Honda Motor Co., Ltd. (HMC - Analyst Report).

Why the Reiteration?

Honda has been increasingly focusing on infrastructural developments. The company’s collaboration with General Motors Company (GM - Analyst Report) is noteworthy as the entities aim to develop next-generation fuel cell vehicles by 2020 in order to conform to the fuel economy standard in the U.S.

Honda also recently announced investments in Ohio and Brazil to expand its plants and boost manufacturing capacity. Moreover, in the Automobile business, Honda is focusing on introducing new products for local markets, enhancing its global network and expanding its business in Asia.

Honda expects revenues to increase 22.5% to ¥12,100 billion in fiscal 2014. Operating profit is expected to surge 43.2% to ¥780 billion and net income is anticipated to rise 58% to ¥580 billion or ¥321.81 per share. The company expects higher revenues, favorable model mix and effective cost reduction measures to boost profits during the year.

However, on the negative side, Honda’s first-quarter fiscal 2014 (ended Jun 30, 2013) earnings per share dropped 7% to ¥67.97 ($0.69) from ¥73.09 in the corresponding period last year. Net income stood at ¥122.4 billion ($1,243 million), down from ¥131.7 billion in the year-ago quarter.

Further, we are concerned about Honda’s increasing SG&A and R&D expenses and declining cash balance. Frequent product recalls are also unfavorable.

Other Stocks to Consider

Honda currently carries a Zacks Rank #2 (Buy). In the same industry, Daimler AG and Fuji Heavy Industries Ltd. (FUJHY) are worth a look at the moment. While Daimler carries a Zacks Rank #1 (Strong Buy), Fuji carries a Zacks Rank #2 (Buy).

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