Originally a motorcycle manufacturer, Honda (HMC) now makes automobiles, motorcycles, and power products such as boat engines, generators, and lawnmowers. It also makes robots and private jets and is currently Japan’s third-largest automaker by sales and has the highest exposure to North America out of Japan’s big three.
Honda’s brand and its reputation for quality have certainly helped drive demand for its models. HMC has also been historically known for fuel-efficient cars, which has positioned it to take advantage of the massive consumer demand for more fuel-efficient vehicles.
The popularity of its vehicles has also allowed it to use fewer incentives than other automakers, boosting its profits and improving its cars’ resale value. Like most automakers these days, the company is investing in electric vehicles with its Honda 2030 Vision.
The vision is based on the goal of zero-carbon through electrified mobility products. The company’s focus is on the development of electric vehicles and self-driving cars. Management aims to generate 66% of its global automobile sales from electric vehicles by 2030 and achieve carbon neutrality by 2050.
The company has also undertaken collaborations to expand its business and bolster its growth prospects. For example, HMC created a joint venture with GAC Group to build electric battery cars and plug-in hybrid vehicles in China to meet the country’s green vehicle quotas.
The firm has also made deals with General Motors (GM) and Hitachi (HTHIY). In April 2020, HMC and GM announced an agreement to develop two all-new electric vehicles for HMC. Those vehicles will be on GM’s global EV platform powered by its proprietary Ultium batteries, but HMC will design the vehicle exteriors and interiors.
In late 2019, HMC and HTHIY agreed to merge four of their car parts businesses to create a components supplier with almost $17 billion in sales. In addition to these joint ventures, HMC is also looking to develop collision-free technologies to ramp up the safety of its cars and help improve connected mobility services.
Plus, the company has been taking steps to control costs and optimize its production capacity. This is part of a global restructuring move that will lower fixed costs and vehicle production expenses. That generates savings that can be directed toward more profitable opportunities.
So far, the firm’s moves have translated into growth. In the most recent reported quarter, sales from the Automobile segment increased 79.4% year over year to $20.6 billion. Revenue from the Motorcycle segment came in at $4.7 billion, surging 89% year over year.
While the semiconductor shortage remains a challenge for many automakers, HMC said in its latest earnings release that those disruptions did not have a significant impact on its results. Going forward, the company has a favorable product lineup in its U.S. auto business through calendar 2022.
The new Civic launched in June and has seen strong demand so far. Next year has new generations of key light truck products with the CR-V, HR-V, Pilot, Passport, and the Accord midsize sedan. Light trucks are over 75% of U.S. industry sales now, so this certainly bodes well for the company.
HMC has an overall grade of A, translating into a Strong Buy rating in our POWR Ratings system. The company has a Value Grade of A, which certainly makes sense with a tiny trailing P/E of 5.94 and a forward P/E of 8.10.
HMC also has a Stability Grade of B, which means the company has a stable history of growth and price performance. For instance, its stock has a beta of 0.72, which indicates that the stock is almost 30% less volatile than the market.
We also provide Growth, Momentum, Sentiment, and Quality Grades for HMC, which you can find here. HMC is ranked #4 in the Auto & Vehicle Manufacturers industry. For more top stocks in this industry, click here.
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HMC shares fell $0.18 (-0.60%) in premarket trading Wednesday. Year-to-date, HMC has gained 7.65%, versus a 20.58% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More...
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