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Honda Motor Corporation (ticker symbol: HMC) is a Japanese automobile manufacturing company. Besides cars, Honda also produces and distributes motorcycles and power equipment. Honda’s headquarter is located in Minato in Tokyo, Japan. The corporation is in the top 10 auto manufacturers worldwide based on yearly revenue, with around USD 121 billion, Honda Motors is in the 6th place behind General Motors (USD 122.5 billion).
In addition, the corporation also has the title of the world’s largest motorcycle manufacturer since 1959, with an astonishing production of 400 million motorcycles in 2019. On top of these successes, HMC also became the second-largest Japanese automobile manufacturer in 2001, with first place belonging to Toyota Motors. The company was founded in October 1946 by Soichiro Honda. The current representing CEO is Toshihiro Mibe. The number of employees worldwide is approximately 204 000.
IPO-ed on 15th of December 1972, Honda Motor Corporation made its shares tradeable on the US market (NYSE) at USD 1.04 per share. The stock has risen drastically by almost 1000% ever since, with an all-time high at around USD 37.15. The stock had its year-to-date low on the 30th of September 2022, trading at USD 21.53 per share. Reasons for the stock depreciation earlier were the death of the former CEO and president Tadashi Kume, as well as consumers suing Honda for hiding defects and saying that the vehicles were left “Dead In The Water”. After a small bounce, HMC is currently trading at USD 24.32.
Taking a look at the quarterly earnings reports, mixed results are noticeable. In Q1, Honda Motors estimated earnings per share were USD 0.84 while the company reported USD 0.66, with a negative surprise of -21.57%, which surprisingly didn’t negatively affect the stock price, as the revenue estimate was surpassed by about 5%. Q2 wasn’t much different. Again, the estimate of EPS wasn’t met, whereas the quarterly revenue report exceeded the estimate of the USD 30 billion mark. However, the share price descended by -5.6%, yet the stock started a bullish movement on the next day, now trading at a higher price than before the earnings report. One of the reasons for the price increase would be associated with the positive surprise in operating profit rising by 16%.
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Honda (HMC) Stock Forecast 2023
Now, let us get to the predictions and forecasts for you to decide if you should consider adding HMC to your portfolio. Taking a look at the yearly chart, we can see that Honda has been on a downtrend for this year. Generally, history should not be assumed to be repeating itself in the future but if you look at the stock price you will notice that it has the tendency to what is called reversal to the mean. Thus given the previous negative stock performance one would expect that together with its strong fundamentals 2023 is most likely going to be a positive year for Honda Motors investors. Let’s dive into the details.
Honda had mixed news, which could be relevant to the stock price movement. For example, one of the news was regarding the production, in one of the many production sites, which is going to be cut by 20%. However, the good news for the company and its investors is that the firm announced entering the new commercial EV vans market by 2024, which is a significant step for the future of the firm given the market trend. This is a good sign also for the stock in the long term in 2024, if no other headwinds or turbulences occur.
Honda Motors had 2 EPS estimates which were not met, even missed by a significant span. Given the supply chain issues in the market as well as the latest negative earnings surprises HMC will have a hard time meeting the estimated revenue forecast of around USD 32 billion, as well as the EPS of 0.97, which is surprisingly much higher than the Q1 and Q2 estimates, that weren’t met.
Honda Motor’s forecast annual earnings growth rate from 2022 to 2023 is 13.91%, which if met would beat the US Auto Manufacturers Industry’s average forecasted earnings growth rate of 12.06%. However, in terms of the overall US market’s average forecasted earnings growth rate of 17.02% would not be exceeded.
The average analyst price forecast for HMC is USD 28.89 per share which would lead to an 18.80% increase, compared to the current stock price. Based on 18 analysts giving stock ratings to Honda Motor in the past 3 months, the stats show 9 Strong Buy, 3 Buy, and 6 for Hold.
Looking at the technical indicators and starting with the Relative Strength Index (RSI), we can see a neutral signal that can be explained as “Hold”. Continuing with the Moving Average convergence divergence (MACD) we can see that the bearish tone is still in place as it indicates a “Sell” strategy for the stock.
Thus considering the technical analysis and taking a look at the fundamentals more specifically the income statements of the previous years – we can see that there was an overall rise in total revenue over the past 5 years besides 2019 and 2020. Taking into account that the COVID-19 pandemic started this year, we can conclude that the income statements for the next years are going to be affected negatively due to the fact that the current uncertain market conditions with high inflation, rising interest rates and supply chain issues will drive the sales and thus the income numbers down similar to the previous crisis period.
Honda (HMC) Stock 2022
The year-to-date Honda Motor Corporation stock price drop is -15.61% as we write this. The overall NYSE Composite Index as a market performance indicator has a result of -10.91%. Hence the overall market downturn can explain part of HMC’s stock decline but certainly, it wasn’t the only factor. One of the causes was the negative Q1 and Q2 earnings reports.
Furthermore, headlines like “Honda cut production by 10% in two factories” or “Honda to cut car output by up to 40% at Japan plants on supply snags”, also resulted in the share price dropping by around 6% and causing further stock volatility.
HMC has been on a bearish run since the beginning of December, with the stock still staying volatile together with the market developments. A positive financial statement could push the stock price up for the start of 2023, otherwise, the stock is either going to stay in the same price zone as now or continue its depreciation.
Honda (HMC) Stock 2021
After the bearish run from the previous 2019 and 2020 years, HMC performed in the green zone for 2021, however not as noticeable as the investors would expect with just a 1% positive gain in the stock price. For 2021 the earnings estimation was mostly met or exceeded for each quarter by the company which was driving the stock price increase over the first half of the year. The second half was less favorable due to issues related to the supply chain.
Honda (HMC) Stock 2020
The year started with a stock price of around USD 28 and started decreasing significantly due to a negative earnings surprise as well as a market adjustment to the dividend payment. Even after hitting its lowest level of around USD 19 per share in the pandemic period, more specifically in March, Honda still managed to recover some of the losses end of the year due to a positive earnings surprise in the last quarter and closed the year with just around -2% performance.
Conclusion
The HMC stock price has gone up significantly since its IPO, looking at the historical chart, we can see that the stock has been growing steadily with some volatility in between the years. Considering the results of the fundamental and technical analysis, as well as the news and analyst ratings, an overall conclusion could be made to hold the stock or wait with the purchase for the time being. It is suggested to wait for further clarity in terms of financial statements, as well as the supply chain disruption issues or economic stability as the year comes to the end. Once there is more clarity regarding the future of the company then only one should decide to become a Honda Motors investor.
FAQ
Why is the Honda stock so volatile in recent years?
The company seems to be cyclical in terms of periods of economic downturn as was experienced during the COVID pandemic. Given the current economic uncertainties as well as the issues with supply chains it will be expected to see further volatility in the stock price.
What is then the best time to purchase the stock?
It is very difficult to time the market and most investors fail to do so, if you are willing to build a long position in Honda’s stock try to use a dollar-cost averaging strategy which will allow you to enter into the position over time with short amounts which will average your purchase cost over the time.
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