Toyota Stock only 5% higher after recent rally?

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[Updated 11/20/2020] Toyota Motors Update

Having gained more than 28% since the March 23 low, Toyota Motors stock (NYSE: TM) is only 5% higher. TM’s stock fell from $ 111 to $ 142 from the recent low against the S&P 500 which moved 60%. The company has seen a steady increase in revenue in recent years and its P / E multiple has increased. We believe the stock, after the recent rally, is close to its near term potential. Our dashboard What factors led to a 15.9% change in Toyota Motors inventory between 2018 and now? has the underlying numbers.

Due to the Covid-19 crisis, Toyota Motors, one of the largest automakers in the world, saw its revenues drop by 26% for the first six months of the year compared to the same period of the year. last year. In the second quarter of 2021 (ended September 2020), Toyota reported profit of 225.21 yen, while total revenue was recorded at 6,774 billion yen, down 11% year-on-year. In addition, the company reported 1.290 billion yen of cash inflows from operating activities for the first six months.

We are waiting Toyota Motors revenue remain stable at around 29.930 billion yen for fiscal 2021 (fiscal year ends in March). In addition, its net profit is expected to decline 5% year-on-year, reducing EPS to 723.27 yen for fiscal 2021. Subsequently, revenue is expected to reach 30.542 billion yen in 2021, mainly due to the recovery. in all segments after the end of the pandemic. Also, EPS is likely to improve to ¥ 743.24 which, coupled with the P / E multiple of 21.8x and a yen / dollar exchange rate of $ 0.01, will lead to Toyota Motors valuation about $ 150.

[Updated 06/26/2020] Looks like Toyota Stock has reached the end of the road after its recent rally

Toyota Motors (NYSE: TM) stock has rebounded more than 15% from falling to $ 111 on March 23 to its current level of around $ 126. This compares in particular to the 36% growth of the S&P 500 over the same period. We believe Toyota now has limited upside potential. The key is that the company’s shares are 12% higher from the end of fiscal 2019 (fiscal year ends in March).

Part of this increase over the past two years is driven by the approximately 5% increase in Toyota Motors revenues between fiscal 2018 and 2020, but offset by the net profit margin, which increased from 8.5% in 2018 to 6.9% in 2020. Earnings growth, per share, was -9.8% lower, slightly offset by share buybacks. Specifically, the company invested around $ 12 billion in buybacks from 2018 to 2020, which resulted in an approximately 5% drop in outstanding shares. With Toyota Motors having around $ 39 billion in cash at the last report, we believe it will likely be difficult for the company to maintain this level of buyout until the situation of the coronavirus pandemic becomes clear. .

Finally, Toyota’s P / E ratio fell from around 8x at the end of fiscal 2018 to 9x at the end of fiscal 2020 and has remained at that level for the past several months. In the current situation, there is a limited advantage for Toyota’s multiple over levels seen in recent years.

Coronavirus effect

The global spread of the coronavirus has led to the lockdowns of various cities around the world, which has affected industrial and economic activity. This is likely to negatively affect consumption and consumer spending. More than 35% of Toyota’s total revenue comes from the region of the United States, which is most affected by the epidemic. Lower consumer spending and lower consumption would lead to lower demand for automobiles. These factors are sure to hurt Toyota’s revenue. We believe Toyota’s first quarter 2021 results will confirm the revenue trend as the Americas and Europe show negative growth. It is also likely to accompany a clearer Q2 as well as FY’21 orientations.

Actual recovery and its timing depend on wider containment of the spread of the coronavirus. Our dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Brazil and Russia. As investors focus on the 2021 results, valuations become important in finding value.

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