Updated Research Report on Honda - Analyst Blog

On Mar 14, 2014, we issued an updated research report on Honda Motor Co., Ltd. HMC. The company's efforts to develop infrastructure and introduce new products are helping in business expansion. However, we are concerned about increasing selling, general and administrative (SG&A) and research and development (R&D) expenses and debt. Frequent product recalls are also disadvantageous.

Honda posted a 107.6% rise in earnings to ¥160.7 billion ($1.53 billion) or ¥89.18 (85 cents) per share in the third quarter (ended Dec 31, 2013) of fiscal 2014 from ¥77.4 billion ($0.97 billion) or ¥42.97 (41 cents) per share in the same quarter of the prior fiscal year. However, earnings per share lagged behind the Zacks Consensus Estimate of 86 cents.

Consolidated net sales and other operating revenues grew 24.5% to ¥3.02 trillion ($22.7 billion) but remained less than the Zacks Consensus Estimate of $28.95 billion. The year-over-year increase was attributable to higher revenues in the automobile and motorcycle business operations as well as favorable foreign currency translation effects.

For fiscal 2014, Honda has projected revenues to increase 22.5% to ¥12.1 trillion ($121 billion). Operating income is expected to surge 43.2% to ¥780 billion ($7.8 billion) and net income is anticipated to jump 58% to ¥580 billion ($5.8 billion) or ¥321.81 ($3.22) per share. The company expects higher revenues, favorable model mix, effective cost reduction measures, positive currency effects and beneficial impact of raw material cost fluctuations to contribute to the increase in profits during the year.

Currently, shares of Honda retain a Zacks Rank #2 (Buy). Some other automobile stocks worth considering are Tata Motors Ltd. TTM, Daimler AG (DDAIF) and Tesla Motors, Inc. TSLA. Tata Motors and Daimler sport a Zacks Rank #1 (Strong Buy) while Tesla is Zacks Rank #2 stock.