Expectations are low for Toyota Motor Corp (NYSE: TM) ahead of Friday’s fiscal first-quarter 2019 earnings report. Analysts are expecting weak U.S. auto trends to weigh on Toyota’s earnings growth, and the international trade war is creating near-term uncertainty in the auto market.
Analysts are expecting Toyota to report first-quarter earnings per share of $3.94. They are also calling for revenue of $65.3 billion, up 2.2 percent from a year ago.
[See: 5 Automakers to Rev Up a Long-Term Investor’s Portfolio.]
On Wednesday, Toyota reported a 6 percent decline in U.S. auto sales in July, including an 18 percent drop in passenger car sales. U.S. rivals Ford Motor Co. ( F) and General Motors Co. ( GM) both gave disappointing outlooks during their recent second-quarter earnings reports, and both stocks took a hit.
A potential 25 percent tariff on auto imports would impact nearly half the U.S. sales of Toyota’s five best-selling models. Its top-selling vehicle in the U.S., the RAV4, is produced entirely in Canada and Japan. Unfortunately for Toyota investors, the U.S. market is Toyota’s largest global market and accounts for about a quarter of its global sales. Investors will be paying close attention to any commentary related to the trade war and its potential impact on pricing, costs and sales.
Investors will also be watching for details on Toyota’s China business. Toyota has had a relatively difficult time tapping the high-growth China market compared to peers such as GM and Volkswagen.
Domestic Japanese sales are critical as well, particularly when it comes to the Prius. The Prius is Toyota’s top-selling model in Japan, but sales have consistently been on the decline since early 2016.
Despite all the headwinds, CFRA analyst Efraim Levy says Toyota provides an excellent value for long-term investors willing to stomach near-term volatility.
[Read: Should You Buy Auto Stocks?]
“We expect to see operating and pretax margins decline as the company increases investment in electrification and mobility, while also facing unfavorable raw material price trends,” Levy says.
Still, CFRA is projecting $14 of EPS from Toyota in fiscal 2019 and $16.50 in EPS in fiscal 2020.
“TM’s valuation is likely to benefit from emerging market growth as well as the company’s favorable long-term growth prospects and strong balance sheet, partly offset by expectations of post-peak U.S. market and the stronger yen,” Levy says.
CFRA has a “buy” rating for and $155 price target for TM stock.
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Toyota Motor Corp Earnings: What To Expect From TM Stock originally appeared on usnews.com
