HMC Honda Motor Co Ltd

Toyota Motor Corp. (TM) decided to invest $80 million in its Woodstock, Ontario plant in Canada in order to boost output of RAV4 sport utility vehicles (SUVs). The company’s decision was led by strong demand for the SUV and an expected recovery in North America.

The investment will create 400 jobs at the plant as Toyota plans to raise the annual production capacity by one third to 200,000 vehicles. Woodstock and other plants in Ontario employ about 6,500 workers. Apart from RAV4, they manufacture the Corolla and Matrix compacts as well as the Lexus RX 350 luxury SUV.

Despite a 23% fall in sales of RAV4, the SUV was ranked 20th among the best-selling vehicles in the U.S. last year. The decrease in sales was attributable to delay in supply of vehicles due to disruptions caused by the earthquake and tsunami in Japan on March 11, 2011.

Sales trend in the U.S. auto industry is much more stable now, indicating an improvement in the broad fundamentals of the economy. Last month, light vehicle sales in the U.S. escalated 15.7% to seasonally adjusted annual rate (SAAR) of 15.1 million units, despite higher gasoline price (up 10% to $3.74 per gallon) and lower spending on discounts and promotions by automakers (down 4.7% to $2,457 per vehicle). This compared with SAAR of 12.8 million vehicles in full year 2011.

Further, the average price of vehicles went up by a robust $1,943 last month compared with February last year, according to TrueCar.com. We believe strong pent-up demand will continue to revive the industry from recessionary lows.

Toyota’s sales increased 12% to 159,423 vehicles in February driven by higher demand for fuel-efficient vehicles. Yaris subcompact car was the most popular model during the month with an 86% rise in sales to 3,611 units. Meanwhile, its compatriot Honda Motor Co.’s (HMC) sales scaled up 7.8% to 110,157 vehicles in the month driven by strong sales of Civic cars and CR-V SUVs.

Despite an expected rebound in the U.S., we are disappointed by the company’s sales earnings guidance. The automaker expects to record a profit of ¥200 billion ($2.4 billion) for the fiscal year ending March 31, 2012, which is less than half compared with the year-ago profit of ¥408.18 billion. The company also expects revenues of ¥18.3 trillion ($220.7 billion), a decrease of 4% from the prior-year.

As a result, the company retains a Zacks #3 Rank on its shares, which translates to a “Hold” rating for the short term (1 to 3 months). We have also recommended the shares of the company as “Neutral” for the long-term (more than 6 months).

 
HONDA MOTOR (HMC): Free Stock Analysis Report
 
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research