We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Here's How to Play Honda (HMC) Stock Post its Q1 Results
Read MoreHide Full Article
Japan’s auto biggie Honda (HMC - Free Report) posted its first-quarter fiscal 2025 results on Aug 7, wherein revenues and EPS exceeded expectations. Quarterly operating profit rose to an all-time high of ¥485 billion, thanks to strong hybrid sales in the United States and Japan as well as robust two-wheeler demand in India and Brazil. A weaker yen also contributed to the company’s impressive results.
All these factors managed to offset the weaker sales in China. Nonetheless, demand remains strong in most of the other end markets. After posting a record operating profit of ¥1.38 billion in fiscal 2024, Honda seems to be on track for another year of record profits. It envisions operating profit to reach ¥1.42 billion in fiscal 2025, with margins of 7%, indicating an increase of 20 basis points year over year.
Let’s dive into the fundamentals of the stock and find out if Honda makes for a promising investment now.
3 Reasons Why We are Optimistic About HMC
Rising Hybrid Demand: Honda's success in the hybrid vehicle segment is driving growth as consumer demand for hybrids is surging. Hybrids now account for roughly half of the company’s U.S. sales. In fact, the Honda CR-V hybrid was the best-selling hybrid model in the United States in 2023. Earlier this year, Honda outlined its strategy to strengthen its position in the hybrid market by boosting R&D investment.
The CR-V and Accord hybrids are performing well, and Honda launched a hybrid version of the Civic in June. The company aims to sell 1 million hybrids this year and double production to 2 million by 2030, using the profits to support its transition to electric vehicles (EVs).
Ambitious EV Plans: Honda intends to invest 10 trillion yen in electrification technology through fiscal 2030. It plans to establish a comprehensive, vertically integrated EV supply chain, focusing on reducing battery costs by over 20% and overall production costs by 35% by the decade's end. It expects EVs and FCEVs (fuel cell EVs) to constitute 40% of its global auto sales by 2030 and 100% by 2040. Honda targets a 5% return on sales for its EV business by 2030. The company’s EV lineup, with the new 0 series, debuted with the Saloon and Space-Hub concepts at CES in January 2024, will be pivotal in its electrification efforts. The 0 Series will be launched in North America in 2026, expanding globally with seven models by 2030.
In China, Honda aims to introduce 10 EV models by 2027, targeting 100% EV sales by 2035. The automaker is partnering with Nissan (NSANY - Free Report) and Mitsubishi to create a new Japanese alliance focused on developing next-generation software-driven EVs, whose production is set to begin around 2028.
Investor Friendly Moves: While Honda is accelerating investments in electrification and software, it also remains committed to increasing shareholders’ returns via dividends and stock buybacks. In fiscal 2024, the company bought back shares worth 250 billion yen. Between Nov 2, 2017 and Apr 30, 2024, the company reduced its share count by more than 147 million shares. Honda will repurchase shares of up to 300 billion yen between May 13, 2024, and Mar 31, 2025, ensuring robust shareholder returns.
As for dividends, the company plans to pay roughly 1.3 trillion yen in dividends over the 2022-2026 timeframe and more than 1.6 trillion yen for FY2027-2031. Honda has consistently paid dividends for decades, distributing them twice a year. It offers an attractive dividend yield of more roughly 4%. It has a sustainable payout ratio of around 30%, a level that ensures financial stability. Honda has a manageable long-term debt-to-capitalization ratio of 31%.
Not All is Rosy Though
Weakness in China is a key concern. Honda’s sales in China slid more than 30% in the first quarter of fiscal 2025 amid a tough business environment and intense pricing pressures. Honda currently lacks competitive EVs for the Chinese market which could rival market leaders like BYD Co Ltd (BYDDY - Free Report) . Given the challenges, Honda has reduced its fiscal 2025 sales forecast in China by 220,000 vehicles. It is set to shut down one of its JV plants with Guangzhou Automobile Group this October. Honda also intends to suspend production at the Dongfeng JV plant— with an annual capacity of 240,000 vehicles — in November.
Price Performance and Valuation
Shares of Honda have declined 13.5% over the past six months, outperforming the industry and its closet peer Toyota (TM - Free Report) , while underperforming the sector and S&P 500.
6-Month Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Honda’s current price-to-earnings ratio of 6.38 is lower than the industry’s 7.23. TM’s forward earnings multiple sits at 8.68 currently. Honda’s P/E is currently lower than its five-year median value as well, indicating that the stock is trading at a discount. HMC carries a Value Score of B.
Image Source: Zacks Investment Research
Is it the Right Time to Buy HMC Stock?
Honda is capitalizing on the growing demand for hybrids, as sales of battery-electric vehicles aren’t growing as fast as expected. While many automakers have rushed toward full electrification, Honda has taken a more strategic approach by focusing on hybrid vehicles and hydrogen technology. This measured strategy is proving successful, defying critics who expected Honda to fall behind its BEV-focused competitors. Instead, Honda's emphasis on hybrids is protecting it from the intense competition and profitability challenges in the BEV market.
The Zacks Consensus Estimate for Honda's fiscal 2025 sales suggests year-over-year growth of around 3%, with upward revisions in its fiscal 2025 and 2026 EPS projections over the past 30 days.
Image Source: Zacks Investment Research
Given Honda’s appealing valuation, strong hybrid lineup, ambitious electrification plans and a commitment to enhancing shareholder value, we remain bullish on the company and recommend buying the stock now for potentially substantial returns.
Image: Bigstock
Here's How to Play Honda (HMC) Stock Post its Q1 Results
Japan’s auto biggie Honda (HMC - Free Report) posted its first-quarter fiscal 2025 results on Aug 7, wherein revenues and EPS exceeded expectations. Quarterly operating profit rose to an all-time high of ¥485 billion, thanks to strong hybrid sales in the United States and Japan as well as robust two-wheeler demand in India and Brazil. A weaker yen also contributed to the company’s impressive results.
All these factors managed to offset the weaker sales in China. Nonetheless, demand remains strong in most of the other end markets. After posting a record operating profit of ¥1.38 billion in fiscal 2024, Honda seems to be on track for another year of record profits. It envisions operating profit to reach ¥1.42 billion in fiscal 2025, with margins of 7%, indicating an increase of 20 basis points year over year.
Let’s dive into the fundamentals of the stock and find out if Honda makes for a promising investment now.
3 Reasons Why We are Optimistic About HMC
Rising Hybrid Demand: Honda's success in the hybrid vehicle segment is driving growth as consumer demand for hybrids is surging. Hybrids now account for roughly half of the company’s U.S. sales. In fact, the Honda CR-V hybrid was the best-selling hybrid model in the United States in 2023. Earlier this year, Honda outlined its strategy to strengthen its position in the hybrid market by boosting R&D investment.
The CR-V and Accord hybrids are performing well, and Honda launched a hybrid version of the Civic in June. The company aims to sell 1 million hybrids this year and double production to 2 million by 2030, using the profits to support its transition to electric vehicles (EVs).
Ambitious EV Plans: Honda intends to invest 10 trillion yen in electrification technology through fiscal 2030. It plans to establish a comprehensive, vertically integrated EV supply chain, focusing on reducing battery costs by over 20% and overall production costs by 35% by the decade's end. It expects EVs and FCEVs (fuel cell EVs) to constitute 40% of its global auto sales by 2030 and 100% by 2040. Honda targets a 5% return on sales for its EV business by 2030. The company’s EV lineup, with the new 0 series, debuted with the Saloon and Space-Hub concepts at CES in January 2024, will be pivotal in its electrification efforts. The 0 Series will be launched in North America in 2026, expanding globally with seven models by 2030.
In China, Honda aims to introduce 10 EV models by 2027, targeting 100% EV sales by 2035. The automaker is partnering with Nissan (NSANY - Free Report) and Mitsubishi to create a new Japanese alliance focused on developing next-generation software-driven EVs, whose production is set to begin around 2028.
Investor Friendly Moves: While Honda is accelerating investments in electrification and software, it also remains committed to increasing shareholders’ returns via dividends and stock buybacks. In fiscal 2024, the company bought back shares worth 250 billion yen. Between Nov 2, 2017 and Apr 30, 2024, the company reduced its share count by more than 147 million shares. Honda will repurchase shares of up to 300 billion yen between May 13, 2024, and Mar 31, 2025, ensuring robust shareholder returns.
As for dividends, the company plans to pay roughly 1.3 trillion yen in dividends over the 2022-2026 timeframe and more than 1.6 trillion yen for FY2027-2031. Honda has consistently paid dividends for decades, distributing them twice a year. It offers an attractive dividend yield of more roughly 4%. It has a sustainable payout ratio of around 30%, a level that ensures financial stability. Honda has a manageable long-term debt-to-capitalization ratio of 31%.
Not All is Rosy Though
Weakness in China is a key concern. Honda’s sales in China slid more than 30% in the first quarter of fiscal 2025 amid a tough business environment and intense pricing pressures. Honda currently lacks competitive EVs for the Chinese market which could rival market leaders like BYD Co Ltd (BYDDY - Free Report) . Given the challenges, Honda has reduced its fiscal 2025 sales forecast in China by 220,000 vehicles. It is set to shut down one of its JV plants with Guangzhou Automobile Group this October. Honda also intends to suspend production at the Dongfeng JV plant— with an annual capacity of 240,000 vehicles — in November.
Price Performance and Valuation
Shares of Honda have declined 13.5% over the past six months, outperforming the industry and its closet peer Toyota (TM - Free Report) , while underperforming the sector and S&P 500.
6-Month Price Performance
Image Source: Zacks Investment Research
From a valuation standpoint, Honda’s current price-to-earnings ratio of 6.38 is lower than the industry’s 7.23. TM’s forward earnings multiple sits at 8.68 currently. Honda’s P/E is currently lower than its five-year median value as well, indicating that the stock is trading at a discount. HMC carries a Value Score of B.
Image Source: Zacks Investment Research
Is it the Right Time to Buy HMC Stock?
Honda is capitalizing on the growing demand for hybrids, as sales of battery-electric vehicles aren’t growing as fast as expected. While many automakers have rushed toward full electrification, Honda has taken a more strategic approach by focusing on hybrid vehicles and hydrogen technology. This measured strategy is proving successful, defying critics who expected Honda to fall behind its BEV-focused competitors. Instead, Honda's emphasis on hybrids is protecting it from the intense competition and profitability challenges in the BEV market.
The Zacks Consensus Estimate for Honda's fiscal 2025 sales suggests year-over-year growth of around 3%, with upward revisions in its fiscal 2025 and 2026 EPS projections over the past 30 days.
Image Source: Zacks Investment Research
Given Honda’s appealing valuation, strong hybrid lineup, ambitious electrification plans and a commitment to enhancing shareholder value, we remain bullish on the company and recommend buying the stock now for potentially substantial returns.
HMC currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.