The Japanese auto giant Toyota Motor Corp (ADR) (NYSE:TM) looks ahead to another year of record-earnings. Toyota gained 4.7% in quarterly net income, hitting 628 billion yen (US$5.4 billion). Revenue rose 2.4% to 7.4 trillion yen (US$62.9 billion) for the quarter. (Source: “Toyota quarterly net rises 4.7% to $5.4 billion,” Automotive News, February 5, 2016.)
In calendar year 2015, Toyota has dominated the global automotive industry. Its brands—Toyota, Lexus, Daihatsu, and Hino—have sold more than 10 million vehicles.
Toyota stock should gain ground this year, predicting higher sales. The automaker is strengthening its hegemony through further acquisitions. Toyota is also expanding in India, introducing the “Prius” and the Daihatsu brand. Toyota could pose a serious threat to Suzuki Motor, the current market leader in India.
However, yearly sales volumes were down everywhere, hit by a slowdown in emerging markets. Toyota stock has faced some resistance. TM stock lost 11% year to date. The automaker’s earnings of $3.33 per share (ADR) for the third quarter (ended December 31, 2015) had mixed reactions. Analysts had expected earning per share of $3.44. (Source: “Toyota (TM) Misses Q3 Earnings and Revenue Estimates,” Zacks Equity Research, February 5, 2016.)
Automotive analysts worry that the industry faces a possible downturn after years of outperformance. Toyota even issued a higher forecast for the yearly earnings, ending in March: a record net profit of 2.27 trillion yen, about US$23.0 billion. The previous forecast was 2.25 trillion yen. (Source: “Toyota Boosts Optimism for an Industry Expected to Turn Lower,” The Street, February 5, 2016.)
Toyota wrestled the top rank back from Volkswagen, suffering from the emissions scandal, dubbed “Dieselgate.” Yet, it has not translated that prestige into stock value. The analyst consensus on Toyota is a “Hold” rating. One analyst at Standpoint Research rates TM stock a “Buy.” The good news is that Toyota stock has considerable upside at its current price of about $110.00 per share. The low target price is $133.00 and the high target $144.00.
While, “Hold” is the consensus, for many analysts, this is an upgrade. Zacks upgraded Toyota stock to a “Hold” from a “Sell.” (Source: “Toyota Motor Corp (TM) Position Cut by Financial Partners Capital Management LLC,” Financial Market News, February 5, 2016.)
The main risk for Toyota is that it has sold fewer vehicles than a year ago. Toyota owes much of its global success to its unrivaled presence in emerging markets. Lately, its only growing market is North America, where it generates about a third of its revenue. Still, Toyota is catching up behind its rivals in China, where Volkswagen Group is one of the main automotive players. Ironically, Toyota can gain further market share in North America by exploiting Volkswagen’s fall from grace.
Toyota has also highlighted the success of its latest Prius hybrid range (gasoline-electric) in Japan. It will soon appear in the U.S. and European markets, too. The new Prius is targeting a different kind of customer; Toyota’s marketing team wants to win over drivers of more traditional cars, rather than preaching to the choir. Not by chance, it has chosen Super Bowl Sunday (February 7) to launch a major “badass” TV advertising campaign. (Source: “Toyota’s Super Bowl ad wants to make the Prius badass in its own geeky way,” Mashable, February 4, 2016.)
Toyota will recover, reaching its annual targets thanks to its growing U.S. stronghold and growth in China. The company has lifted its full-year vehicle sales forecast for North America to 2.87 million units, up from 2.85 million. Toyota sees the stable U.S. economy as being able to sustain demand for its SUVs and pickup trucks. (Source: “Toyota quarterly net rises 4.7% to $5.4 billion,” Automotive News, February 5, 2016.)
Finally, Toyota has benefited from another top-ten “Interbrand Best Global Brand” finish. The list considers Toyota stock valuations, the company, and its properties. It also evaluates the perception of the brand and its potential. Toyota rose from eighth place in 2014 to sixth place this year; it was the only car company to see such an upgrade. Toyota’s brand is worth some $49.0 billion. (Source: “TOYOTA Remains Most Valuable Global Automotive Brand According to Interbrand,” Business Wire, October 6, 2015.)