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Toyota (TM) Ticks Down Ahead of Earnings: What To Expect

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Shares of Toyota Motor Corp. (TM - Free Report) ticked down 0.4% during regular trading hours Thursday, the last day before the Japanese automotive giant releases its latest quarterly earnings report. U.S. stocks were mostly green on the day, but Toyota continued its month-long downward trend.

TM shares have gained about 15% in the past year as the firm continues to expand its presence in China. The company plans to launch 10 new electric vehicles and open a new battery-testing facility in China by 2020, and as part of that has been strengthening its local R&D and production bases in the region. Moreover, Toyota aims to shift half of its vehicles to a new cost-saving platform by 2020.

Recent efforts to develop self-driving vehicle technology are also promising. However, Toyota’s luxury brand Lexus had to recall 121,000 vehicles in late-June to fix fuel leaks, representing a short-term headwind. But what should we expect from its soon-to-be-reported quarter? Let’s take a closer look.

Toyota Motor Corporation Price, Consensus and EPS Surprise

Toyota Motor Corporation Price, Consensus and EPS Surprise | Toyota Motor Corporation Quote

Earnings Outlook

Toyota will release its Q1 fiscal 2019 results before the market opens on Friday. Here’s what analysts are expecting, according to our Zacks Consensus Estimates:

Earnings: TM is projected to report earnings of $3.73 per share, which would represent about 2.2% growth from the year-ago period.

Estimate Revisions: TM has seen mixed estimate revision activity in the past 60 days. No recent changes have been made for the current quarter, but the firm has seen split revision activity for the current fiscal year. One analyst issued a negative estimate in the last 30 days, but another revised their estimate upward in just the last week.

Revenue: Consensus estimates have TM’s Q1 revenue pegged at $65.87 billion. This would mark growth of 3.8% year over year.

Valuation

TM is trading at 9.0x forward 12-month earnings heading into today’s report. This is a slight discount compared to the broader “Auto-Tires-Trucks” industry average of about 9.4x, and is about in line with historical trends. 

Over the past year, TM has traded as high as 11.7x and as low as 8.4x. Its 52-week median earnings multiple is 10.3x.

Bottom Line

Toyota is not as much a play on explosive growth as it is on stability. Earnings figures are not expected to rise by much, but the company’s long-term initiatives hold notable promise. In the meantime, Friday’s earnings report will provide important updates on Toyota’s recent performance in its consumer segments across the world.

TM shares are up about 15% in the past year, so some investors may want to realize their gains instead of risking an earnings play. Analyst revision activity for the quarter has been mixed, and TM has a flat Zacks Earnings ESP (Expected Surprise Prediction) of 0%.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Given the stock’s current Zacks Rank of #3 (Hold), this Earnings ESP value leaves us inconclusive about TM’s chances at beating estimates going into this afternoon’s report. It is also worth noting that that Toyota has notched earnings outperformance in the last 9 quarters.

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