Does This Economic Environment Favor Toyota?

With shares of Toyota Motor Corporation (NYSE:TM) trading at around $183.74, is TM an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Will Abenomics revive the auto sector in Japan? For those who aren’t yet aware, Abenomics refers to Prime Minister Shinzo Abe’s approach to reigniting the Japanese economy. If past events are any indication of future results, then he will have success, but only temporarily. In the end, he will only have made the situation worse. For a time, he will be as popular as Lance Armstrong in the United States in the mid-2000s. Then, he will be just as unpopular once reality sets in.

While this might seem to be a major part of the story for Toyota, it’s not. Toyota relies moreso on the United States and China. Based on “expert” predictions, both countries are expected to show growth. Considering the facts that incomes are declining and taxes are increasing in the United States, it would be difficult to find a reason for discretionary spending to increase. China is a bit more difficult to figure out because we don’t know what’s real and what’s not real. Therefore, an attempt will not be made.

On a company-specific basis, Toyota has been an all-star. For example, according to Glassdoor.com, 95 percent of employees approve of CEO Akio Toyoda. That’s an outstanding number. Worldwide sales of Toyota hybrids have also topped 5 million units.

Many people might think that people buy hybrids because of the environment. While that might be true, they will not buy hybrids if the price isn’t right. People always put price first, regardless of what they say. The point here is that Ford Motor Co. (NYSE:F) is gaining ground on Toyota in hybrids, which has a lot to do with price. Toyota’s hybrid market share was 71 percent last year at this time. It’s now 58 percent. That’s still impressive, but the trend is heading in the wrong direction.

There are other concerns for Toyota, which include a decline in revenue in 2012 and inconsistent earnings. The stock also didn’t hold up well in 2008. Then again, no automaker did. That’s certainly not the place to be when the market heads south.

Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Toyota, Ford, and General Motors Company (NYSE:GM).  Toyota has a market cap of $183.80 billion, Ford has a market cap of $55.78 billion, and General Motors has a market cap of $43.42 billion.

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TM

F

GM

Trailing   P/E

18.81

9.62

10.86

Forward   P/E

12.98

8.55

7.31

Profit   Margin

3.51%

4.27%

4.00%

ROE

7.94%

33.97%

15.22%

Operating   Cash Flow

$30.85 Billion

$7.18 Billion

 N/A

Dividend   Yield

1.20%

2.90%

N/A

Short   Position

N/A

1.90%

N/A

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Toyota is close to the industry average of 0.80.

Debt-To-Equity

Cash

Long-Term Debt

TM

1.10

$35.57 Billion

$165.78 Billion

F

5.99

$24.18 Billion

$107.60 Billion

GM

0.48

$27.20 Billion

$18.42 Billion

 

T = Technicals Are Strong    

Aside from the past month, Toyota has outperformed its peers for every time frame listed below.

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1 Month

Year-To-Date

1 Year

3 Year

TM

9.02%

24.51%

48.92%

59.28%

F

14.91%

11.19%

36.35%

24.52%

GM

14.77%

9.56%

41.26%

N/A

 

At $183.74, Toyota is trading above all its averages.

50-Day   SMA

171.26

100-Day   SMA

166.22

200-Day   SMA

163.96

 

E = Earnings Have Inconsistent                     

Earnings have been all over the map, but Toyota usually delivers impressive profits. A bigger concern is that revenue declined in 2012.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

265.63

210.71

204.17

230.48

225.88

Diluted   EPS ($)

10.92

-2.86

1.44

3.16

2.19

 

When we look at the last quarter on a year-over-year basis, we see a decline in revenue and an increase in earnings.

12/2011

3/2012

6/2012

9/2012

12/2012

Revenue   ($)in   billions

62.65

69.31

69.37

69.67

61.48

Diluted   EPS ($)

0.66

0.96

2.31

2.10

0.73

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

On the positive side, there is pent-up demand and easy credit. On the negative side, these trends aren’t sustainable.

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Conclusion

Toyota is a well-run company that still has a lot of upside potential. However, there are considerable risks due to the macroeconomic environment. Toyota is a WAIT AND SEE.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.