Japan’s second-largest automaker, Honda Motor stock (NYSE: HMC), has seen its stock outperform this year, rising by over 20%. Although the recent performance of the company’s automotive business has been mixed, with Q4 and FY’23 results falling slightly short of estimates, the company’s outlook is looking better. While Honda saw its consolidated sales rise by about 16% year-over-year to 16,907.7 billion yen, driven by strong motorcycle sales and a weakening yen, operating margins fell from 6.0% in the year-ago period to about 5.0% in FY’23 due to commodity price related inflation. Honda shipped a total of 3.69 million vehicles over FY’23, down by about 9.5% year-over-year and also below its reduced guidance of 3.85 million units, as supply chain snarls, the semiconductor shortage, and the end of some favorable tax treatment on cars in China weighed on volumes. Honda’s motorcycle business has been growing strongly, led by emerging markets such as India, Vietnam, and Thailand. Overall motorcycle volumes expanded by roughly 10%.
So, is Honda stock undervalued at current levels of about $25 per share? There are some macro trends that could benefit Honda and other automakers. The commodity price environment is improving with inflation cooling off. Semiconductor and supply chain issues are also likely to ease, helping production. At the same time, demand has remained strong, with consumers willing to spend more per vehicle. This could help Honda’s overall revenues and profitability over FY’24. Honda is looking at automotive shipments of about 4.35 million units for FY’24, marking an increase of about 17% year-over-year. Operating margins are also expected to pick up slightly to 5.5% in FY’24, driven by improved factory utilization and volumes. Honda’s valuation also appears compelling. The stock trades at about 8x projected FY’24 earnings, which is well below larger rival Toyota. Honda is also making reasonable progress with the transition to EVs, despite its relatively late entry into the space. The company plans to launch 30 electric models by 2030 by investing about 5 trillion yen (about $38 billion). We value Honda stock at about $30 per share, which is marginally ahead of the current market price. See our analysis of Honda Valuation for more details on what’s driving our valuation for Honda. Also, see our analysis of Honda Revenue for more details on Honda’s key revenue streams.
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