Why Concerns Around Auto Industry Slowdown Have Left Honda’s Stock Considerably Undervalued

by Trefis Team
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Trefis estimates the fair value of Honda Motor (NYSE: HMC) stock to be $39, which is roughly 40% higher than the current market price. Established in Japan in September 1948, Honda has grown over the years into a multinational conglomerate that develops, manufactures, and markets motorcycles, automobiles, and power products globally. Notably, the company has been the world’s largest motorcycle manufacturer since 1959.

In this note, we discuss our stock price valuation for Honda Motors. You can look at our interactive dashboard analysis ~ Honda’s Valuation: Cheap or Expensive? ~ for more details, and also modify our forecasts for the company’s key metrics to understand how changes impact the company’s stock price.

#1. Estimating Honda Motors’ Revenues:

  • Total Revenue increased from $129.6 billion in 2017 to $143.1 billion in 2019 and is expected to increase by 2.9% to $147.2 billion in 2020.
  • A separate interactive dashboard analysis ‘Honda Motors Revenues – How Does Honda Make Money?’, details our forecast for FY 2020.

#2. Deriving Honda Motors’ Net Income:

  • Net Income fell from $5.7 billion in 2017 to $5.5 billion in 2019 due to a reduction in margins due to the global auto slowdown.
  • We expect the net income figure to increase to around $7 billion in 2020 thanks to an improvement in Total Revenue and an increase in net income margin.

#3. Determining Honda Motors’ EPS:

  • EPS rose from $3.17 in 2017 to $5.32 in 2018 but fell back to $3.12 in 2019, and we estimate it to be $4.02 in 2020
  • The rise in EPS for 2020 is expected on the back of better Net Income and lower shares outstanding.

#4. Estimating Honda Motors’ Share Price:

Our Price Estimate of $39 for Honda Motors’ Stock is based on our Detailed Valuation Model for Honda and implies a 9.6x P/E Multiple on expected 2020 EPS of $4.02. Our interactive dashboard captures how Honda Motors compares with its competitors Toyota Motors and Tata Motors in terms of Revenue and P/E multiple.

See all Trefis Price Estimates and Download Trefis Data here

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