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Here's Why You Should Offload Honda Stock From Your Portfolio
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Key Takeaways
Honda cut its full-year Asia sales forecast to 315,000 units amid contracting markets and rising competition.
HMC expects EV-related operating losses of about JPY650 billion driven by profit shortfalls and R&D costs.
Rising capex and higher long-term debt are straining Honda's finances alongside a lower 5.2% ROE.
Honda Motor Co., Ltd. (HMC - Free Report) , a leading manufacturer of automobiles and the largest producer of motorcycles in the world, is facing challenges in Asia due to higher taxes and policy changes. The company also expects EV-related operating losses to widen in fiscal 2026.
Let’s see why you should consider offloading this Zacks Rank #4 (Sell) stock from your portfolio.
Contracting Sales in Asia & Rising EV Expenses to Ail Honda
Asia’s auto market — especially in Indonesia and Malaysia — is contracting due to higher taxes and policy changes, leading to declines in both unit sales and market share. In Thailand, intensified competition from Chinese entrants and aggressive incentives, along with sharper price cuts from Japanese rivals, are further pressuring sales. As a result, Honda has made a downward revision in its full-year Asia sales forecast from 390,000 units to 315,000 units.
The automaker expects a JPY200 billion loss for fiscal 2026, consistent with earlier guidance, and an additional JPY50 billion loss allowance. As a result, expected EV-related operating losses have risen to about JPY650 billion, including around JPY400 billion from normal EV operations. Of this, roughly JPY100 billion stems from gross profit shortfalls, while about JPY300 billion reflects R&D costs, primarily for the upcoming Honda 0 series.
Rising capex requirement is likely to hurt the company’s cash flows. Capital expenditure for fiscal 2026 is expected to jump nearly 23% to 660 billion yen. Notably, Honda is investing $48 billion (7 trillion yen) over the period through 2031.
Rising debt levels are something to keep an eye on. Long-term debt was around ¥8,133 billion as of Sept. 30, 2025, up from ¥6,953 billion as of March 31, 2025. While the long-term debt to capital ratio is manageable at 0.40, it's higher than the industry’s 0.29.
Honda has a Return on Equity (ROE) of 5.2%, which is lower than the industry’s 8.6%. Low ROE suggests a below-average return and indicates that the company may not be using shareholder capital very effectively to generate profits.
The Zacks Consensus Estimate for GM’s 2025 and 2026 EPS has improved 8 cents and 20 cents, respectively, in the past seven days.
The Zacks Consensus Estimate for KAR’s 2025 sales and earnings implies year-over-year growth of 9.4% and 48.2%, respectively. EPS estimates for 2025 and 2026 have improved 9 cents and 11 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for GTX’s 2025 sales and earnings implies year-over-year growth of 2.6% and 16.7%, respectively. EPS estimates for 2025 and 2026 have improved 12 cents and 22 cents, respectively, in the past 30 days.
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Here's Why You Should Offload Honda Stock From Your Portfolio
Key Takeaways
Honda Motor Co., Ltd. (HMC - Free Report) , a leading manufacturer of automobiles and the largest producer of motorcycles in the world, is facing challenges in Asia due to higher taxes and policy changes. The company also expects EV-related operating losses to widen in fiscal 2026.
Let’s see why you should consider offloading this Zacks Rank #4 (Sell) stock from your portfolio.
Contracting Sales in Asia & Rising EV Expenses to Ail Honda
Asia’s auto market — especially in Indonesia and Malaysia — is contracting due to higher taxes and policy changes, leading to declines in both unit sales and market share. In Thailand, intensified competition from Chinese entrants and aggressive incentives, along with sharper price cuts from Japanese rivals, are further pressuring sales. As a result, Honda has made a downward revision in its full-year Asia sales forecast from 390,000 units to 315,000 units.
The automaker expects a JPY200 billion loss for fiscal 2026, consistent with earlier guidance, and an additional JPY50 billion loss allowance. As a result, expected EV-related operating losses have risen to about JPY650 billion, including around JPY400 billion from normal EV operations. Of this, roughly JPY100 billion stems from gross profit shortfalls, while about JPY300 billion reflects R&D costs, primarily for the upcoming Honda 0 series.
Rising capex requirement is likely to hurt the company’s cash flows. Capital expenditure for fiscal 2026 is expected to jump nearly 23% to 660 billion yen. Notably, Honda is investing $48 billion (7 trillion yen) over the period through 2031.
Rising debt levels are something to keep an eye on. Long-term debt was around ¥8,133 billion as of Sept. 30, 2025, up from ¥6,953 billion as of March 31, 2025. While the long-term debt to capital ratio is manageable at 0.40, it's higher than the industry’s 0.29.
Honda has a Return on Equity (ROE) of 5.2%, which is lower than the industry’s 8.6%. Low ROE suggests a below-average return and indicates that the company may not be using shareholder capital very effectively to generate profits.
Stocks to Consider
Some better-ranked stocks in the auto space are General Motors Company (GM - Free Report) , OPENLANE, Inc. (KAR - Free Report) and Garrett Motion Inc. (GTX - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GM’s 2025 and 2026 EPS has improved 8 cents and 20 cents, respectively, in the past seven days.
The Zacks Consensus Estimate for KAR’s 2025 sales and earnings implies year-over-year growth of 9.4% and 48.2%, respectively. EPS estimates for 2025 and 2026 have improved 9 cents and 11 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for GTX’s 2025 sales and earnings implies year-over-year growth of 2.6% and 16.7%, respectively. EPS estimates for 2025 and 2026 have improved 12 cents and 22 cents, respectively, in the past 30 days.