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Bear of the Day: Toyota (TM)

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Automobile manufacturers are facing a few storms that could provide major headwinds into the next several quarters. Rising interest rates certainly don’t help their financing efforts on new cars, although it may provide some opportunities for more in-house financing. Then there’s this notion of “peak auto sales” which implies that the boom in new car sales has reached its end. Then there’s also a glut of cars coming off lease which will put pressure on used car values, adjusting residuals for new models to the downside and making new leases that much tougher for customers to swallow.

Today’s Bear of the Day is facing all these challenges and more. Toyota Motor Corporation (TM - Free Report) is a well-known car manufacturer. It’s most famous monikers include Toyota, Lexus and Scion. The company designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories. The company operates through Automotive, Financial Services, and All Other segments. 

Right now Toyota is down to a Zacks Rank #5 (Strong Sell). The reason for the unfavorable Zacks Rank is there has been recent negative activity on the earnings estimate front. Analysts have come out and dropped their earnings estimates for the current quarter, next quarter, current year and next year. The most dramatic moves have been in next quarter and current year estimates. Our Zacks Consensus Estimate for next quarter has dropped from $2.88 to $2.43 while the current year number has gone from $11.56 to $10.48. When estimates take a hit like that, the stock price often follows.

Toyota shares have fallen further than the rest of the Foreign Auto Manufacturers Industry. YTD shares of TM are off 7.9% while the industry has fallen 6.5%. To give you some perspective, the S&P 500 has gained 8.3% so far this year. Investing in TM means you’ve lagged the market by 16.2% YTD.

The stock has struggled to get over the 50-day moving average since dipping below it in late January with the stock trading near $117. It is off the 52-week lows the stock carved out in April at $104.17. Currently shares are trading at the 50-day moving average. Money Flows have turned positive recently which could provide a shot in the arm in the short run if investors follow through. If not, another failure at the 50-day means the lows are in danger.

Investors looking at other stocks in the same industry should check out Zacks Rank #1 (Strong Buy) Yamaha Motor (YAMHF - Free Report) or Zacks Rank #2 (Buy) Fiat Chrysler (FCAU - Free Report) .

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Yamaha Motor Co., Ltd. (YAMHF) - free report >>

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