What Next For Toyota Motor Corp?

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[Updated 12/20/2021] Toyota Motor Update

Toyota Motor’s stock (NYSE: TM) rose by 3% since Q2 FY 2022 earnings. The company has managed the global chip shortage better than its peers as evidenced by the fact that global sales volume was nearly flat compared to the previous year when most other automobile companies saw a fall in volume. Recently, the company announced they will be investing $13.6 billion in battery technology over the next decade, including a $9 billion investment in production indicating a shift toward adding higher volume of electric vehicles in its line-up. In recently announced Q2 FY 2022, the company reported revenue as ¥7.5 trillion ($68.5 billion), up by 11% y-o-y. The earnings were recorded at  ¥45.01 compared to ¥33.66 in the same period of the previous year. The company also did a five-for-one stock split as of September 30, 2021 though there was no impact on ADR pricing as the ratio was adjusted to 1 ADR to 10 ordinary shares (previously 1 ADR to 2 ordinary shares)

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We expect Toyota Motor’s revenues to rise by 9% to ¥29.7 trillion ($274.6 billion). Further, its net income is likely to rise to ¥3 trillion ($27.4 billion), increasing the EPS figure to ¥211.12 ($19.55) for FY 2022. For FY 2023, we expect revenue to reach ¥31 trillion ($287.1 billion) and net income to increase to ¥3.1 trillion ($29.1 billion). This will take the EPS figure to ¥224.25 ($20.76) for FY 2023, which coupled with the P/E multiple of 95.1x and a yen to dollar exchange rate of $0.00926 will lead to Toyota Motor’s valuation around $197, implying an upside of more than 5%.

Below you’ll find our previous coverage of Toyota Motor stock where you can track our view over time.

[Updated 09/14/2021] Toyota Motor’s Stock To Slow Down? 

Toyota Motor’s stock (NYSE: TM) has been around the current range since June 2021 sans a small dip in mid-August. The company has managed the global chip shortage better than its peers. This was evidenced by the fact that Toyota Motor outsold General Motors in the U.S. for the first time ever by reporting sales volume of 688,813 against GM’s 688,236 in the April – June quarter. In the previous week, the company announced they will be investing $13.6 billion in battery technology over the next decade, including a $9 billion investment in production. This indicates the company is getting serious about adding electric cars to its line-up.

We don’t expect much change in revenue or earnings in the next couple of years due to the investment in battery tech. We expect Toyota Motor’s revenues to rise by 7.1% to ¥29.1 trillion ($269.9 billion). Further, its net income is likely to rise to ¥2.9 trillion ($27 billion), increasing the EPS figure to ¥1043.37 ($19.32) for FY 2022. For FY 2023, we expect revenue to reach ¥29.9 trillion ($277.3 billion) and net income to increase to ¥3.1 trillion ($28.4 billion). This will take the EPS figure to ¥1095.85 ($20.29) for FY 2023, which coupled with the P/E multiple of 18.3x and a yen to dollar exchange rate of $0.00926 will lead to Toyota Motor’s valuation around $186, implying an upside of more than 5%.

[Updated 06/23/2021] Toyota’s Stock To Continue Rally On Future Growth?

Toyota Motor’s stock (NYSE: TM) has gained 56% since the end of FY 2019 (ended March 2019) and 14.6% since the end of FY 2021 (ended March 2021) to $63 currently. The stock has risen continuously since the FY 2021 (ended March 2021) results in May 2021. For FY 2021 the company recorded a revenue fall of 11% y-o-y to ¥272 trillion ($256.5 billion) while earnings improved primarily due to higher interest and dividend income to ¥802.23 ($7.56) per share. The stock has witnessed growth as recovery continued in Q4 of FY 2021 where the revenue increased by 8.3% y-o-y to ¥768.9 trillion ($71 billion). Sales volume also recovered and grew by 5% y-o-y for Q4 FY 2021.

We expect the momentum to continue in FY 2022 (FY ends in March 2022) and Toyota Motor’s revenues to rise by 7.1% to ¥29.1 trillion ($269.9 billion). Further, its net income is likely to rise to ¥2.9 trillion ($27 billion), increasing the EPS figure to ¥1043.37 for FY 2022, which coupled with the P/E multiple of 18.8x and a yen to dollar exchange rate of $0.00926 will lead to Toyota Motor’s valuation around $190, implying an upside of more than 10%.

[Updated 11/19/2020] Toyota Motor’s Update

Having gained more than 28% since the March 23rd lows, Toyota Motor’s stock (NYSE: TM) has only 5% upside left. TM’s stock has rallied from $111 to $142 off the recent bottom compared to the S&P 500 which moved 60%. The company has seen a steady revenue rise over recent years, and its P/E multiple has risen. We believe the stock, after the recent rally, is close to its near term potential. 

Due to the Covid-19 crisis, Toyota Motor Corp, one of the world’s largest automobile companies, has seen its revenues fall by 26% for the first six months of the year compared to the same period in the previous year. In Q2 2021 (ended Sept 2020), Toyota reported earnings of ¥225.21 while total revenues were recorded at ¥6774 billion, down 11% y-o-y. Further, the company reported ¥1290 billion in cash inflows from operating activities for the first six months.

We expect Toyota Motor’s revenues to remain flat at around ¥29,930 billion for FY 2021 (FY ends in March). Further, its net income is likely to fall by 5% y-o-y, decreasing the EPS figure to ¥723.27 for FY 2021. Thereafter, revenues are expected to touch ¥30,542 billion in 2021, mainly driven by recovery across segments after the pandemic subsides. In addition, the EPS figure is likely to improve to ¥743.24, which coupled with the P/E multiple of 21.8x and a yen to dollar exchange rate of $0.01 will lead to Toyota Motor’s valuation around $150.

[Updated 06/26/2020] Looks Like Toyota Stock Has Reached The End Of The Road After It’s Recent Rally

Toyota Motor’s stock (NYSE: TM) has bounced back more than 15% since falling to $111 on March 23 to reach its current level of around $126. Notably, this compares to the 36% growth in the S&P 500 over the same period. We believe Toyota now has limited upside potential. The key is the company’s stock is 12% higher compared to the end of FY 2019 (FY ends in March).

Some of this rise of the last two years is helped by the roughly 5% increase seen in Toyota Motor’s revenues from FY 2018 to FY 2020 but offset by the Net Income margin, which fell from 8.5% in 2018 to 6.9% in 2020. The earnings growth, on a per-share basis, was lower -9.8%, slightly offset by share buybacks. Specifically, the company has invested about $12 billion in repurchases from 2018 to 2020, resulting in about 5% lower outstanding shares. While Toyota Motor did have about $39 billion in cash as of the last report, we believe it will likely be challenging for the company to sustain this level of buybacks till the coronavirus pandemic situation gets clear.

Finally, Toyota’s P/E ratio grew from about 8x at the end of FY 2018 to 9x at the end of FY 2020 and has remained at that level over recent months. Under the current situation, there is a limited upside for Toyota’s multiple when compared to levels seen over recent years.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to affect consumption and consumer spending adversely. More than 35% of Toyota’s total revenue comes from the US region, which is worst impacted by the outbreak. Lower consumer spending and consumption would lead to lower demand for automobiles. These factors are bound to hurt Toyota’s revenues. We believe Toyota’s Q1 2021 results will confirm the trend in revenues as the Americas and Europe will show negative growth. It is also likely to accompany a clearer Q2 as well as FY’21 guidance.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With investors focusing their attention on 2021 results, the valuations become important in finding value.

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 Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
 TM Return 0% 21% 60%
 S&P 500 Return 0% 25% 109%
 Trefis MS Portfolio Return -1% 42% 282%

[1] Month-to-date and year-to-date as of 12/17/2021
[2] Cumulative total returns since 2017

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