Can Toyota Cruise to Higher Prices?

Toyota has faced a challenging environment in the last few years. The devastating tsunami that hit the Japanese coast in 2011, low automotive demand, and recently unfavorable exchange rates have all stifled revenues and earnings for the Japanese automaker. However, the stock has advanced almost 35 percent since the beginning of the year. Can Toyota carry this momentum into the second half of the year? Let’s use our CHEAT SHEET investing framework to decide whether Toyota is an OUTPERFORM, WAIT AND SEE OR STAY AWAY.

C = Catalysts for the Stock’s Movement

Toyota’s bottom-line is extremely sensitive to fluctuations in the yen — every 1 yen change against the dollar affects Toyota’s profitability by an astounding $353.4 million. A weaker yen benefits Toyota’s sales, as around 75 percent of its cars go to overseas consumers.

Shinzo Abe has been somewhat of a savior to Toyota since his election last year. His aggressive stimulus plan has helped depreciate the yen by more than 20 percent against the dollar, leading to a 113.5 percent increase in first quarter earnings from the previous year’s quarter.