Headquartered in Toyota, Japan, Toyota Motor Corporation (TM - Get Rating) designs, manufactures, assembles, and sells passenger, minivans, commercial vehicles, and related parts and accessories. It operates in Automotive, Financial Services, and Other segments.

TM joined the exclusive club of car manufacturers like Tesla, Inc. (TSLA) and General Motors Company (GM) after selling its 200,000th plug-in electric vehicle during the second quarter. This feat has triggered a phase-out of $7,500 U.S. tax credits for future consumers.

According to InsideEVs data, TM sold 205,785 plug-in electric cars between February 2012 and June 30, 2022. The winding down of the federal tax credits starts two quarters after an automaker sells the stipulated number of plug-in electric vehicles.

The winding down of the tax credits starts amid the Japanese automaker’s production ramp-up of its all-electric SUV, the bZ4X. The company said that the winding down of the federal tax credit will begin on October 1, 2022, and is expected to complete by October 2023.

TM’s stock has lost 15.2% in price year-to-date and 10.5% over the past year to close the last trading session at $157.15. It is currently trading 26.4% below its 52-week high of $213.74, which it hit on January 13, 2022.

Here’s what could influence TM’s performance in the upcoming months:

Robust Financials

TM’s sales revenue for the fiscal ended March 31, 2022, increased 15.3% year-over-year to ¥31.37 trillion ($230.81 billion). Its operating income increased 36.3% year-over-year to ¥2.99 trillion ($22 billion).

The company’s net income increased 25.9% year-over-year to ¥2.87 trillion ($21.12 billion). Also, its EPS came in at ¥205.23, representing an increase of 29.1% year-over-year.

Favorable Analyst Estimates

TM’s revenue increased 6.5% and 7.2% year-over-year to $257.22 billion and $275.73 billion, respectively. Its EPS is expected to increase 199.2% and 10% year-over-year to $9.43 and $10.39, respectively.

Stretched Valuation

In terms of forward EV/EBIT, TM’s 16.18x is 45% higher than the 11.16x industry average. Likewise, its 1.48x forward EV/S is 39.1% higher than the 1.06x industry average. And the stock’s 11.56x forward EV/EBITDA is 44.8% higher than the 7.98x industry average.

Mixed Profitability

In terms of trailing-12-month gross profit margin, TM’s 19.03% is 48.1% lower than the 36.67% industry average. Its trailing-12-month 11.48% Return on Common Equity is 32.5% lower than the 17.02% industry average.

Its 14.23% trailing-12-month EBITDA margin is 17.2% higher than the industry average of 12.14%. Furthermore, the stock’s 11.10% trailing-12-month Capex/S is 276.4% higher than the industry average of 2.95%.

POWR Ratings Reflect Uncertainty

TM’s overall rating of C equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. TM has a C grade for Quality, in sync with its mixed profitability.

The stock is trading above its 10-day moving average of $156.02 but below its 200-day moving average of $177.19, justifying its C grade for Momentum.

It has an A grade for Stability, consistent with its 0.61 beta.

TM is ranked #21 out of 66 stocks in the Auto & Vehicle Manufacturers industry. Click here to access TM’s Growth, Value, and Sentiment ratings.

Bottom Line

TM recently achieved the milestone of selling its 200,000th plug-in electric vehicle. The company becomes the third automaker after TSLA and GM to achieve this milestone. The company’s long-term prospects look bright as it is expected to launch 30 battery-electric vehicles by 2030.

However, now that TM has crossed the threshold of 200,000 electric and hybrid plug-in vehicle sales in the U.S., its future customers will not be eligible for the federal tax credit, which might affect its electric and hybrid plug-in car sales. Moreover, the stock is currently trading at a stretched valuation. So, it could be wise to wait for a better entry point in the stock.

How Does Toyota Motor Corporation (TM) Stack Up Against its Peers?

While TM has an overall POWR Rating of C, you might want to consider investing in the following Auto & Vehicle Manufacturers stocks with a B (Buy) rating: Mercedes-Benz Group AG (DDAIF - Get Rating), Honda Motor Co., Ltd. (HMC - Get Rating), and Isuzu Motors Limited (ISUZY - Get Rating).

TM shares were trading at $156.33 per share on Friday morning, down $0.82 (-0.52%). Year-to-date, TM has declined -14.73%, versus a -18.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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