Why Toyota Stock Looks Like A Buy Despite Mixed Earnings

TM: Toyota Motor logo
Toyota Motor

Toyota Motor’s stock (NYSE: TM) has declined by around 20% year-to-date, underperforming the broader U.S. indices. Toyota posted mixed results for Q2 FY’23. Revenue rose by over 22% to 9,218 billion yen ($69 billion), with deliveries rising by about 10% versus last year. However, operating profits fell to about 562 billion yen ($4.2 billion), down from 749 billion yen a year earlier as the company faces headwinds amid rising interest rates, foreign exchange volatility, and disruption to manufacturing caused by coronavirus lockdowns in China. While Toyota has reiterated its operating profit forecast of 2.4 trillion yen ($17 billion) for the fiscal year 2023, it cut its production target for the year to 9.2 million vehicles from 9.7 million vehicles previously. That said, profits are projected to remain down by about 20% versus last year due to supply chain-related headwinds.

Although the results were a mixed bag, we think that Toyota stock warrants a look at current levels of about $146 per share.  Toyota currently trades at about 14x Toyota’s earnings guidance for this year, which is well above peers such as GM and Ford who trade at single-digit multiples. However, we think that Toyota warrants a premium, given its highly efficient manufacturing and considerable scale, being the world’s largest automaker. While Toyota’s production could see some headwinds in the near term due to the semiconductor shortage, the company raised its full-year revenue outlook to 36 trillion yen (about $268 billion) up from 34.5 trillion yen, despite supply chain headwinds, buoyed by a depreciating Japanese yen. Although Toyota has apparently been going slow with the launch of battery electric vehicles, it has spread its bets across hybrids, hydrogen, and EVs. Toyota’s overall electrified vehicle lineup, which includes hybrids and battery electric vehicles, is expected to account for about 29.5% of its deliveries this year, up from about 28% last year. Toyota also leads the industry in the development of solid-state batteries which are touted to increase the range, and reduce charging times, while also making EVs safer. If the company is able to produce and deploy solid-state cells at scale, it could give Toyota’s EV business an edge.

We value Toyota stock at about $198 per share, about 35% ahead of the current market price. See our analysis of Toyota Valuation for more details on what’s driving our valuation for Toyota. Also, see our analysis of Toytota Revenue for more details on  Toyota’s key revenue streams.

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MTD [1]
YTD [1]
Total [2]
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[1] Month-to-date and year-to-date as of 12/3/2022
[2] Cumulative total returns since the end of 2016

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