Toyota Motor Corp (ticker: TM) stock price is chugging along at more than $100 per share, with both good and bad news merging to provide a muddled outlook on the Japanese auto giant’s stock market prospects.
And while TM stock is down more than 9 percent since the beginning of the year, as the market digests events that impact Toyota Motor and the auto industry, it’s not as if the company hasn’t seen any good news of late.
So the question remains: Should you buy TM stock?
Toyota is No. 1. Toyota just retained its No. 1 “global auto brand” ranking for the 10th time in 12 years, according to BrandZ, boasting a brand value of $28.7 billion. On the downside, Toyota’s brand value decreased 3 percent as increased sales were offset by tough currency challenges, as well as increased investment and rising labor costs. That’s a trend that’s afflicting all the globe’s top automakers, experts say, which leaves the door open to competitors.
[Read: Why the Auto Industry Is in Trouble.]
“The car business is an industry anticipating rapid change and many brands are already taking steps to prepare for new sales channels, changing forms of ownership and the arrival of more connected and autonomous cars,” says Peter Walshe, Global BrandZ strategy director at Kantar Millward Brown. “The financial pressures to deliver current sales while also investing and anticipating the future are placing established brands under great pressure and creating space for newcomers like Tesla ( TSLA) to power ahead.”
Even as it retains its crown as the globe’s top auto brand, TM is staring down the barrel of a weakening corporate finance picture. In May, the company reported a fiscal-year profit decline, with net profits falling 20 percent to 1.8 trillion yen, or $16 billion, even as global sales were on the upswing.
Lower sales in the U.S., though, muted TM’s financial growth, and a more robust yen negatively impacted corporate earnings.
Even so, analysts remain fairly bullish on Toyota’s stock picture. A June survey by the Financial Times of 25 global auto industry analysts who cover TM stock notes that 12 recommend a “hold” position (versus eight a year ago at the same time); seven say that Toyota will “outperform” versus 12 one year ago; and three analysts advise investors to buy TM stock. Only one analyst believes Toyota stock will underperform this year.
A separate analysis by ADR of 22 auto analysts pegs Toyota’s target stock price at $120.70 per share, with 13 analysts recommending that shareholders hang on to the stock.
[Read: How Global Blue-Chip Stocks May Balance Portfolios.]
Toyota’s share price has already seen $120 per share, a number it hit in January after the company announced plans to invest $10 billion into U.S. operations, primarily to shore up existing plants and to build a new North American headquarters in Texas.
Ending its association with TSLA. Since then, the company has jettisoned its shares of Tesla, while at the same time ending its joint project with Tesla to build electric vehicles. “Our development partnership with Tesla ended a while ago, and since there haven’t been any new developments on that front, we decided it was time to sell the remaining stake,” said Ryo Sakai, a Toyota spokesperson.
The takeaway on Toyota, experts say, is that even with a sluggish period of quarterly growth, a weakening global auto market, and with its Tesla ties cut, the stock is still worth a closer look.
“Toyota is the largest auto company globally as measured by sales volume with around 9 million units sold annually, of which 2.8 million units will be sold in North America,” says Benjamin Beneche, senior investment manager at London-based Pictet Asset Management. “This scale has allowed Toyota to generate reasonable operating margins through cycle — at 7.2 percent last year. This is no mean feat in an industry which is ruthlessly competitive, remains capital intensive and where the workforce remains largely unionized.”
Yet, Beneche sees “little to be excited about” for Toyota at a company level. “The management have done a great job improving shareholder returns over the past five years, with a reasonable dividend yield of 3.5 percent with ongoing buybacks. However, this may be reaching a limit,” he says.
Get ready for a flying car? Next up for Toyota is a “flying car” project (called “Cartivator” which the company says will result in the release of a flying vehicle to debut at the Tokyo 2020 Summer Olympics.
That’s the epitome of a creative, successful and forward-thinking global auto brand. But it’s going to take more than airborne Avalon’s to get investors into Toyota stock in a big way.
[Read: U.S. News Announces the 2017 Best Cars for the Money.]
Meanwhile, the company’s stock is stuck in neutral, with limited potential to get out of low gear in the near future.
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Toyota Motor Corp (TM) Stock Is Stuck in Neutral originally appeared on usnews.com
