TM Toyota Motor Corporation

We have upgraded our long-term recommendation on Toyota Motor Corporation (TM) to Outperform from Neutral. The company plays a key role in the global market for offering fuel-efficient and environment-friendly vehicles. Moreover, the automaker expects favorable impact from its cost reduction measures and benefit from its focus on the emerging markets.

Toyota Motor occupies the No.1 position in hybrid cars market. It focuses on hybrid and environmentally friendly vehicles such as electric and fuel cell vehicles. Since 1997, the automaker marketed more than 3.4 million hybrid vehicles through December last year. The company also plans to launch about 10 new hybrid vehicles by 2015.

In order to provide high quality vehicles at affordable prices in the context of present macroeconomic situation, the company continues to undertake cost-cutting measures. It is planning to curtail expenditure on plants and equipment through efficient use of the existing facilities. The company has recorded a 2% decrease in cost and expenses to ¥18.3 trillion in fiscal 2012 from ¥18.5 trillion in fiscal 2011.

Toyota plans to invest in the emerging markets (especially Asia) due to strong demand in order to ensure long-term profitability. The company has recently announced plans to expand production capacities in Indonesia (Karawang plant) and India in order to meet the rising demand for automobiles.

However, past recalls have damaged Toyota’s reputation and led to a decline in sales. Further, it continues to face difficulties in obtaining parts from suppliers due to the twin disaster in Japan and floods in Thailand.

Toyota witnessed a 30.5% decline in profits to ¥283.56 billion ($3.7 billion) or ¥90.20 ($1.17) per share in its fiscal year ended March 31, 2012, compared with ¥408.18 billion or ¥130.16 in the prior fiscal year. With this, the company has missed the Zacks Consensus Estimate of $2.52 per share for the year.

Revenues in the year went down marginally by 2% to ¥18.58 trillion ($241.59 billion). The decrease in revenues and profits was driven by challenges faced by the company owing to the disasters in Japan and Thailand as well as unprecedented strength of the yen.

Toyota is the leading automaker in the world. Its product portfolio consists of a full range of models from passenger cars, minivans and trucks as well as related parts and accessories. Its domestic competitors include Honda Motor Co. (HMC) and Nissan Motor Co. (NSANY).

Our long-term recommendation is backed by a Zacks #1 Rank on the stock, which translates into a short-term (1 to 3 months) Strong Buy rating.

 
HONDA MOTOR (HMC): Free Stock Analysis Report
 
NISSAN ADR (NSANY): Free Stock Analysis Report
 
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
 
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