How Much Value Can A Higher Growth Rate In Acura Sales Add To Honda’s Price Estimate
Honda Motor Co. ‘s (NYSE: HMC) luxury car brand Acura has seen its sales decline by 10.5% in the U.S. auto market on a year-to-date basis so far in 2016. This is a worrying sign for the company since luxury car sales are more profitable than sales of any other auto sub-segment. While luxury sales make up about 10% of overall unit sales, they make up around 20% of the revenue and close of half of the profits of the auto industry, owing to higher margins on each unit sale. It is for this reason all auto companies are trying to grow the sales of their premium car brands.
The table below analyzes the impact doubling the growth rate of Acura sales can have on Honda’s stock price. In the base case, we assume a cumulative average growth rate of 5% over the 2017-2020 period. Doubling that growth rate can result in a 10% improvement in our price estimate for the Japanese auto maker. However, halving that growth rate can result in a 9.3% reduction in our price estimate for the company.
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Honda Motor
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