Recently, Japan-based auto company Honda Motor Co., Ltd. (HMC - Get Rating) announced that it will begin selling micro-sized commercial electric vans by the spring of 2024.

The global electric vehicle market is projected to grow at a CAGR of 16.4% from 2022 to 2029. Amid increasing electric vehicle (EV) demand, HMC is expected to benefit significantly.

Earlier this year, HMC expressed its goals of producing nearly 2 million EVs /year and 30 EV models globally by 2030.

Moreover, HMC announced the set-up of a new joint venture battery plant with LG Energy Solution in Fayette County, Ohio. The two companies will invest approximately $3.50 billion and aim to create around 2,200 jobs. This lucrative deal should help both companies broaden their future gains.

In addition, HMC is paying a hefty dividend on its shares, making it an ideal source of passive income. HMC’s dividend payouts have increased at 7.1% CAGR over the past three years. Its current dividend yield is 7.36%, while its four-year average yield is 3.38%.

HMC has lost 15.4% year-to-date and 14% over the past year to close the last trading session at $24.07. However, it has gained 2% over the past month.

Here is what could shape HMC’s performance in the near term:

Solid Financials

HMC surpassed revenue estimates by 4.6% for its quarter that ended September 30, 2022.

HMC’s sales revenue came in at ¥4.26 trillion ($31 billion) for the quarter that ended September 30, 2022, up 25% year-over-year. Its operating profit came in at ¥231.20 billion ($1.69 billion), up 16.2% year-over-year. Moreover, its profit came in at ¥189.20 billion ($1.39 billion), up 13.6% year-over-year.

Attractive Valuations

HMC’s forward EV/Sales of 0.58x is 46.5% lower than the industry average of 1.09x. Its forward EV/EBITDA of 7.22x is 20.7% lower than the industry average of 9.11x. Also, its forward Price/Sales of 0.33x is 61.9% lower than the industry average of 0.86x, while its forward Price/Cash Flow of 2.41x is 77.1% lower than the industry average of 10.54x.

POWR Ratings Reflect Promising Outlook

HMC has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HMC has an A grade for Value, in sync with its lower-than-industry valuation multiples.

It has a B grade for Stability, consistent with its beta of 0.78.

In the 62-stock Auto & Vehicle Manufacturers industry, HMC is ranked #5.

Click here for the additional POWR Ratings for HMC (Growth, Momentum, Sentiment, Quality).

View all the top stocks in the Auto & Vehicle Manufacturers industry here.

Bottom Line

HMC is offering a high dividend to its shareholders. Moreover, analysts expect its EPS to rise 13.2% per annum for the next five years. And given its steady fundamentals, HMC could be an excellent pick for investors looking for passive income.

How Does Honda Motor Co., Ltd. (HMC) Stack up Against Its Peers?

While HMC has an overall POWR Rating of A, one might consider looking at its industry peers, Isuzu Motors Limited (ISUZY - Get Rating), Suzuki Motor Corporation (SZKMY - Get Rating), and Mazda Motor Corporation (MZDAY - Get Rating), which have an overall A (Strong Buy) rating.

HMC shares were trading at $23.70 per share on Thursday afternoon, down $0.37 (-1.54%). Year-to-date, HMC has declined -14.26%, versus a -17.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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