Honda Motor Company (HMC) Upgraded To Hold: Find Out Why

Honda Motor Company ( (NYSE:HMC) ) has been upgraded to Zacks Rank #3 (Hold) on May 26. The company recorded earnings of ¥95.9 billion ($841.2 million) or ¥53.24 per share (47 cents per ADR) in the fourth quarter (ended Mar 31, 2017) of fiscal 2017 against the consolidated loss of ¥93.4 billion ($812.2 million) and loss per share of ¥51.85 (46 cents per ADR) a year ago. Earnings also surpassed the Zacks Consensus Estimate of 21 cents per share.

Consolidated net sales and other operating revenues rose 2.9% year over year to ¥3.76 trillion ($32.98 billion), beating the Zacks Consensus Estimate of $31.19 billion.

Over the years, Honda has focused on infrastructural development in North and South America in order to boost sales. In Apr 2017, the company announced that it will build a $124 million advanced wind tunnel facility at the Transportation Research Center in East Liberty. The wind tunnel facility will generate wind speeds of up to 192 miles per hour, which can be used for testing the vehicle-production of both high-performance sports and race cars. Further, in Mar 2017, it announced an investment worth $150 million for two of its North American plants.

The company is also making new products launches to expand business in Asia and attract more customers. In Apr 2017, the company announced that it will launch an all-electric battery car in China by the end of 2018, as per the rising demands. Honda is also making frequent collaborations with other companies to expand business in its existing markets.

Honda’s shares outperformed the Zacks categorized Automotive-Foreign in the last six months. The company’s share declined 7.1%, while the industry recorded a decline of 6.5%.

However, Honda has been recalling vehicles frequently in the last few years. The Japanese automaker was the largest customer of the faulty Takata airbags that can explode and shoot out metal fragments in a crashed vehicle. Honda needs to recall 10.7 million Honda and Acura vehicles to replace Takata airbag inflators. Along with this recall underway, it often announces safety recalls for other reasons. Frequent product recalls not only reduce consumers’ confidence in a brand, but also add to expenses.

Honda has provided a weak guidance for fiscal 2018. Operating income is likely to decline 16.1% to ¥705 billion ($6.71 billion). Net income is projected to decline 14% to ¥530 billion ($5.05 billion) or ¥294.07 ($2.83) per share, down 48% year over year.

Honda has witnessed one downward revision for current quarter earnings in the past 60 days. However, the Zacks Consensus Estimate for first-quarter fiscal 2018 has remained stable at 87 cents in the past 30 days.

Honda Motor Company, Ltd. Price and Consensus

Honda Motor Company, Ltd. Price and Consensus | Honda Motor Company, Ltd. Quote

Stocks to Consider

Better-ranked companies in the auto space include Fiat Chrysler Automobiles N.V. (NYSE:FCAU) , Lear Corporation (NYSE:LEA) and TATA Motors Ltd. (NYSE:TTM) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fiat Chrysler has expected long-term growth of 22.4%.

Lear has expected long-term growth of 7.1%.

TATA Motors has expected long-term growth of 27.3%.

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