On Sep 11, 2014, we issued an updated research report on Honda Motor Co. Ltd. (HMC). The company reported positive earnings surprises in the last three quarters with an average beat of 2.7%.
Honda posted a 19.6% rise in earnings to ¥146.5 billion ($1.44 billion) or ¥81.29 per share (80 cents per ADR) in the first quarter (ended Jun 30, 2014) of fiscal 2015. Earnings per ADR surpassed the Zacks Consensus Estimate by a penny.
At present, the company is focusing on introduction of products, infrastructural developments and expansion of its business in Asia, especially India and Indonesia, to attract more customers.The company is also collaborating with other automakers to develop fuel cell vehicles, which should benefit its results in the future.
However, we are concerned about the rise in selling, general and administrative (SG&A) expenses, research and development (R&D) expenses and interest expenses. Moreover, Honda is witnessing a series of product recalls. Frequent product recalls not only reduce consumers’ confidence in a brand but also add to expenses.
Honda expects an increase in revenues, operating profit and net income in fiscal 2015. The Zacks Consensus Estimate for the company’s fiscal 2015 earnings per ADR is pegged at $3.50, reflecting 12.2% year-over-year growth. Honda currently carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Stocks worth considering in the auto sector include Tesla Motors, Inc. (TSLA), Nissan Motor Co. Ltd. (NSANY) and Tata Motors Limited (TTM). All these sport a Zacks Rank #1 (Strong Buy).
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