Rebounding global demand for automobiles owing to massive economic stimulus, coupled with rising interest in electric vehicles (EVs), has been driving the performance of the auto manufacturing industry. Also, with increasing concerns over the spread of the highly contagious Delta variant of COVID-19, auto sales are expected to increase as people avoid public transport. According to Fitch Ratings, U.S. light vehicles sales are expected to hit 15.6 million in 2021, up nearly 10% from 2020. With most countries seeking to address climate change concerns over the next decade, auto manufacturers are also ramping up the production of EVs in anticipation of a continuing increase in demand.
Although the industry is facing an acute semiconductor chip shortage, the supply of semiconductors is anticipated to improve in the coming months based on measures taken by governments and businesses. Investors’ interest in the auto industry is evident in First Trust NASDAQ Global Auto Index Fund’s (CARZ) 9.6% increase over the past three months.
Given this backdrop, we think shares of auto manufacturing leaders Volkswagen AG (VWAGY), Daimler AG (DDAIF), Honda Motor Co. Ltd (HMC), and Mazda Motor Corporation (MZDAY) could be wise bets now. Our proprietary POWR Ratings system currently has an A rating for these stocks.
Volkswagen AG (VWAGY)
Headquartered in Germany, VWAGY is an automobile manufacturer and retailer. Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services are the four segments through which the company operates. It offers products under the brand names Volkswagen, Audi, SEAT, SKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN.
Last month, VWAGY and Pon Holdings B.V. agreed to launch a takeover of Europcar Mobility Group. Through this merger, the companies aim to transform Europcar and deliver new and innovative mobility solutions to meet growing customer demand.
During the second quarter, ended June 30, 2021, VWAGY’s revenue increased 63.8% year-over-year to €67.29 billion ($79.85 billion). Its operating income came in at €6.55 billion ($7.77 billion) for this period, compared to a €2.39 billion ($2.84 billion)operating loss in the first quarter of 2020. The company reported €4.86 billion ($5.77 billion) in net income, compared to a €1.61 billion ($1.91 billion) net loss in the prior-year quarter. The company’s EPS totaled €9.7 ($11.51), compared to a €3.23 ($3.83) loss per share in the prior-year period.
The company’s EPS is expected to grow 212.8% year-over-year to $6.28 in the current year. In addition, analysts expect VWAGY’s revenue to increase 11.4% in its fiscal year 2021. VWAGY’s stock has gained 101.8% over the past year and 59.2% year-to-date.
VWAGY’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY has also been rated B for Growth, Stability, and Value. Within the Auto-Vehicle Manufacturers industry, it is ranked #4 of 57 stocks.
To see additional POWR Ratings for Sentiment, Quality, and Momentum for VWAGY, click here.
Daimler AG (DDAIF)
Stuttgart, Germany-based DDAIF manufactures and distributes automobiles, trucks, and vans in Germany. Mercedes-Benz Cars; Daimler Trucks; Mercedes-Benz Vans; Daimler Buses; and Daimler Financial Services are among the primary segments through which the company operates.
In June, DDAIF’s luxury vehicles segment Mercedes-Benz announced that it plans to go all-electric by the end of the decade. All new vehicle designs will be electric-only beginning in 2025, and consumers will be able to pick an all-electric option for any model the company produces. The company intends to drive its business growth by keeping up with the accelerated transformation in the auto sector.
DDAIF’s revenue increased 44.1% year-over-year to €43.48 billion ($51.60 billion) in the second quarter, ended June 30, 2021. The company reported €5.19 billion ($6.15 billion) in operating income, compared to an operating loss of €1.68 billion ($2 billion) in the prior-year quarter. Its net income came in at €3.60 billion ($4.27 billion) for this period, compared to a €2 billion ($2.37 billion) net loss in the first quarter of 2020. The company’s EPS totaled €3.36 ($3.99), compared to a €1.87 ($2.22) loss per share in the prior-year period.
The company’s EPS is expected to grow 201.7% year-over-year to $12.31 in its fiscal year 2021. Analysts expect DDAIF’s revenue to increase 12.6% year-over-year to $209.1 billion in the current year. The stock has gained 93.9% over the past year and 27.2% year-to-date.
DDAIF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. DDAIF also has an A grade for Value, and a B for Stability and Momentum. In addition, the stock is ranked #2 of 57 stocks in the Auto-Vehicle Manufacturers industry.
Beyond the POWR Ratings grades we have just highlighted, one can see the DDAIF ratings for Growth, Sentiment, and Quality here.
Honda Motor Co. Ltd (HMC)
Headquartered in Tokyo, Japan, HMC is a leading manufacturer and seller of motorcycles, vehicles, power goods, and other items worldwide. The company operates through its Motorcycle Business; Automobile Business; Financial Services Business; and Life creation and Other Businesses segments.
In June, HMC revealed the name of its first new mass-market battery-electric car, “Prologue,” ushering in a new age of electrification in line with the company’s goal of selling 100% zero-emission vehicles in North America by 2040. The battery-electric SUV is set to hit the market in early 2024. For its fiscal year ended March 31, 2021, HMC’s operating income rose 4.2% from its year-ago value to ¥660.2 billion ($101.90 billion).Its net income increased 44.3% year-over-year to ¥657.4 billion ($101.47 billion), while its EPS grew 120.62% from the prior-year quarter to ¥380.75 ($58.76).
The $3.85 consensus EPS estimate for the fiscal period ending March 2023 represents a 28.9% increase year-over-year. The $137.20 billion consensus revenue estimate for the current year represents a 385% increase from the same period last year. The stock has gained 26.8% over the past year and 35.9% over the past nine months.
HMC’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. HMC is also rated a B for Value, Growth, and Stability. Within the same industry, it is ranked #1 of 57 stocks.
Click here to see additional POWR Ratings for Momentum, Quality, and Sentiment for HMC.
Note that HMC is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Mazda Motor Corporation (MZDAY)
Headquartered in Hiroshima, Japan, MZDAY is a manufacturer and distributor of passenger cars and commercial vehicles internationally. In addition, the company distributes old autos and special purpose vehicles, transports automobiles and components, produces and distributes machine tools, and inspects and repairs automobiles’ bodywork.
Last month, MZDAY launched its first solar power generation system to promote green manufacturing lines and factory offices. The solar panels will generate sufficient electricity to run the facility and charge the batteries of all MX-30 EV vehicles produced there. The company aims to introduce and use green electricity in its efforts to achieve carbon neutrality in 2050.
For the first quarter, ended June 30, 2021, MZDAY’s net sales increased 113.3% year-over-year to ¥803.40 billion ($7.32 billion). The company reported ¥26.11 billion ($237.95 million) in operating income, compared to a ¥45.27 billion ($412.64 million)operating loss in the prior-year quarter. Its net income came in at ¥11.38 billion ($103.70 million) for this period, compared to a ¥66.69 billion ($607.87 million) net loss in the first quarter of 2020. The company’s net cash from operating activities totaled ¥22.31 billion ($203.89 million) compared to ¥124.70 billion ($1.14 billion) in net cash used in operating activities in the prior-year period.
Analysts expect MZDAY’s revenue to increase 59.6% year-over-year to $31.17 billion in its fiscal period ending March 2022. Also, the stock has surged 64.8% over the past year and 46.1% year-to-date.
It is no surprise that MZDAY has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Value, and a B for Growth, Stability, and Quality. In the Auto-Vehicle Manufacturers industry, it is ranked #3 of 57 stocks.
In addition to the POWR Ratings grades I have just highlighted, one can see the MZDAY ratings for Sentiment and Momentum.
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VWAGY shares were trading at $33.59 per share on Monday morning, up $0.40 (+1.21%). Year-to-date, VWAGY has gained 62.90%, versus a 18.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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|DDAIF||Get Rating||Get Rating||Get Rating|
|HMC||Get Rating||Get Rating||Get Rating|
|MZDAY||Get Rating||Get Rating||Get Rating|