On Nov 12, 2014, we issued an updated research report on Honda Motor Co., Ltd. (HMC). This Zacks Rank #4 (Sell) stock reported a negative earnings surprise of 5.26% in the last quarter.
Honda posted a 17.9% rise in earnings to 72 cents per share in the second quarter of fiscal 2015, missing the Zacks Consensus Estimate by 4 cents. Consolidated net sales and other operating revenues grew 4.3% year over year to $27.5 billion, but also fell short of the Zacks Consensus Estimate of $31.6 billion. The year-over-year increase can be attributed to higher revenues from the automobile and motorcycle businesses, and favorable foreign currency translation effects.
Honda reduced its net income guidance by 5.8% to ¥565 billion or ¥313.49 per share for fiscal 2015. The reduced guidance implies expectations of a 1.6% year-over-year decrease. The company also reduced its revenue guidance to ¥12.75 trillion from ¥12.8 trillion projected earlier. Other headwinds include an increasing number of product recalls and ongoing investigations, rising selling, general and administrative, research and development and interest expenses, declining operating cash flow, and cash balance.
Nevertheless, Honda’s focus on infrastructure and product development should benefit the company in the long run. Earlier this month, the company’s Canadian unit revealed plans to invest nearly $750 million to retool three plants for the production of the next-generation Civic. Recently, Honda revealed its full line-up of motorcycles for 2015 and unveiled two new prototypes, the RC213V-S and the True Adventure Prototype. The wide product line-up should help boost sales.
Key Picks from the Sector
Investors interested in the auto industry could consider stocks like Gentex Corp. (GNTX), Douglas Dynamics, Inc. (PLOW) and STRATTEC Security Corporation (STRT), all sporting a Zacks Rank #1 (Strong Buy).
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