Honda
Content
Honda Motor Company
Presented By: Zach Bodine March 9, 2006
Stock Fundamentals
► Price ► 52-Week
$29.54 High $30.36
► 52-Week
► Average ► Market
Low
$23.75
539,598 $55.55 Bil
Volume (3 months)
Capitalization
Investment Recommendation
Buy/Hold
Key Ratios
Ratios (all per share) ► P/E Ratio ► Earnings ► Dividend and Yield Financial Strength Ratios ► Quick ► Current ► Long-Term D/E ► Total Debt to Equity ► Return on Equity (per share) ► Return on Assets
13.46 $2.19 0.34 (1.10%) 0.84 1.13 0.839 13.52% 5.03%
Growth Percentages
►
Over the past 5 Years
Revenue Dividend Per Share Earnings Per Share Operating Income
7.2%
19.42% 14.1% 8.2%
Company Description
Automotive Manufacturers – Major 1. Automobiles 2. Motorcycles 3. Power Products 4. Financial Services
HMC Sales Allocation Over the Past 9 Months
3% 4%
12%
Motorcycles Automobiles Financial Services Power Products
81%
►
Honda is the World’s Largest motorcycle manufacturer but is most known for its automotive industry
Global Position
Over 9 month span ► Honda generated 59% of its automobile profit from the North America alone, which was an increase of 2.5% from a year ago. ► However, Asia led in Motorcycle sales with 27.5%, while N.A. had 25.5%. This was opposite of a year ago.
►
Automobile Business 9 months ended Dec. 30, 2005 Japan North America Europe Asia Other Regions Sales Make up 18.50% 58.90% 8.40% 9.30% 4.60% % change from previous year -2.70% 2.40% 0.30% -0.30% 0.30%
HMC Sales Allocation Across Countries (last reported 9 mo.)
7% 11% 18% Japan 10% North America Europe Asia Other Regions
54%
►
Sales for the last 9 months ended Dec 30, 2005 totaled $60.9B, and Sales for all of 2005 totaled $80.5B.
Honda’s Automobile Brands
►
Honda’s principal automobile products include passenger cars under:
►
Legend, Accord, Civic, City, Fit Saloon, Acura RL, Acura TL, and Acura TSX brands Elysion, Odyssey, Step Wagon, Edix, FR-V, Stream, Fit, Jazz, Pilot, Element, CR-V, Acura MDX, and Acura RSX brands
►
Multiwagons, Minivans, Sport utility vehicle, and Sports coupe under:
►
Consumer Reports Top Automobile picks for 2006
Top Small Sedan (less than $20gs) ► Top Family Sedan ($20-$30gs) ► Top Upscale Sedan ($30-40gs) ► Luxury Sedan ► SUV ($30gs and more) ► Small SUV (less than $30gs) ► Top Minivan ► Top Pick-up Truck ► Green Car ► Fun to drive
►
►
Honda Civic Honda Accord Acura TL (Honda) Infiniti M35 (Nissan) Toyota Highlander Hybrid Subaru Forester Honda Odyssey Honda Ridgeline Toyota Prius Subaru Imprezza
Additionally, Honda was 2nd overall in vehicle reliability right behind Lexus
Marketing/Technology
►
► ► ► ► ►
The new ACE System (Advanced Compatibility Engineering) 5 star rating Hybrid Engines ASIMO Jet Engines Manufacturing Nattokinase
Research and Development
►
►
Honda currently has individualized R&D facilities in Japan for motorcycles, automobiles, and power products, and a motorcycle R&D center in China for its increasing market demand. HRI (the Honda Research Institute) is located in Japan, U.S., and Germany.
- Research focus on: robotics technology, automotive safety, ultra lightweight products, and fuel cell technology - Deriving automotive fuel from plants.
►
Honda also has networked facilities in the UK, Germany and Italy (to help focus on the European market more independently)
Management Structure
► President
and Representative Director Takeo Fukui Age: 62
►
Executive Vice-President and Representative Director Satoshi Aoki Age: 60
► Promotion
of Objective Management:
Staff composed of 22 personnel. Two director positions and one auditor assigned annually outside the company. Temporary directors are paid according to how well the Company performs during their tenor.
Image
► New
Jersey Supreme Court: Honda sued for engine failure by a leasee.
Magnussen Warranty Act Engine failure occurred @ 22,000 miles Losing company must cover all legal fees AAM supports Honda
► Clean-
Fuel tax deduction (2005) ► Tax breaks under new energy bill (2006)
Competitive Analysis
HMC F GM TM Industry
Market Cap: Employees: Qtrly Rev Growth (yoy): 5 year Sales Growth Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Oper Margins (ttm): Net Income (ttm): EPS (ttm): P/E (ttm):
53.25B 137,827 15.80% 9.74% 81.00B 29.58% 8.64B 7.09% 4.05B 2.19 13.22
14.06B 300,000 3.60% 1.06% 177.09B 8.21% 16.10B 1.00% 2.23B 1.048 7.22
10.86B 327,000 -1.20% 1.34% 192.60B 1.53% 5.82B -5.34% -8.45B -15.14 N/A
171.94B 265,753 14.80% 11.12% 173.35B 18.27% 24.35B 8.30% 10.82B 6.61 15.99
53.25B 300.00K 5.60% N/A 177.09B 18.27% 16.10B 7.89% 3.37B 2.19 15.99
PEG (5 yr expected):
P/S (ttm): ROE ROA Dividend Yield
2.06
0.67 14.10% 5.10% 1.12%
2.07
0.08 15.70% 0.80% 5.23%
N/A
0.06 -13.00% -0.70% 11.09%
2.9
1 12.70% 4.70% 1.20%
2.07
0.66
N/A
N/A N/A
Industry Trends
Trend of Companies performing well in foreign markets, but not domestically. GM: Dealing with Health care problems ($100B annually)
► Sold
GMAC Subsid. ► Possibility of bankruptcy in the future
Ford: $1.6B decline in car sales from years ending 04’ – 05’
► Sold
Hertz rentl car business
Chrysler: Changes management around
► Only
U.S. manufacturer not in the red
Volkswagen: high prices, low quality, plus labor force issues Toyota and Honda are prospering well in U.S. market Everyone looks to China for expansion
One Year Price Performance Compared to the S&P 500
Market Performance
5 year Price Performance Compared to the S&P 500
Market Performance
Common Size Financials
Income Statement Revenue (ttm): Revenue Per Share (ttm): Qtrly Revenue Growth (yoy): Gross Profit (ttm): EBITDA (ttm): Net Income Avl to Common (ttm): Diluted EPS (ttm): Qtrly Earnings Growth (yoy): 24.29B 8.64B 4.05B 2.19 -11.70% 81.00B 43.86 15.80%
Balance Sheet Total Cash (mrq): Total Cash Per Share (mrq): Total Debt (mrq): Total Debt/Equity (mrq): Current Ratio (mrq): Book Value Per Share (mrq): 27.54B 0.839 1.128 17.82 5.27B 2.865
Cash Flow Statement
Operating Cash Flow (ttm):
Levered Free Cash Flow (ttm):
5.18B
1.25B
Valuation Data For Return on Equity
Beta = .46 Risk Free Rate = .486 Avg. Market Risk = 11%
Re = Rf + B(Equity Risk Premium) Re = .0486+.46(.11-.0486) =
7.68%
Valuation of Stock Price
► Intrinsic
Value based on Future Cash Flows Growth rate
Normal Growth
Re= 7.68% Owner earnings= $3.14B Growth rate = 4% Second Stage Growth rate = 2.5% Estimated Intrinsic Value= $39.11
► Conservative
Valuation continued
Diminishing Growth
►
► ► ► ►
Using revenue growth of 14.3% from 2003-2004, and 6% from 2004-2005, you could project that revenue growth from 2005-2006 could be equal to: 6/14.3=.4196 .4196*6= 2.52% (new assumed growth rate) Leaving all other variables the same Estimated Intrinsic Value = $34.84
Valuation continued…..
Impressive growth ► By Viewing the table which displays sales in yen over the 9 months ended 12/31/2004, and then looking at the sales in yen for the 9 months ended 12/31/2005 you get the following numbers ► 2004 sales = 6300551 ► 2005 sales =7074255 ► Growth rate= 7074255/6300551= 12.2% ► Adjusted to 10% ► Estimated Intrinsic Value = $62.50
►
Analysts Ratings
RECOMMENDATION SUMMARY*
Strong Buy
finance.yahoo.com
Current 2 1 0 0 0
1 Month Ago 2 1 0 0 0
3 Months Ago 2 1 0 0 0
Mean Recommendation (this week): Mean Recommendation (last week): Change: Industry Mean: Sector Mean: S&P 500 Mean:
1.3 1.3 0 N/A N/A 2.46
Moderate Buy Hold Moderate Hold Sell
Pros and Cons
►
► ► ► ► ► ►
Pros:
►
Fuel/ cost efficient products and technology Extensive R&D programs Superior Technology Moving towards differentiated product lines One of the few currently profiting companies in its industry Objective Management Structure Continuous increase in automotive sales in North America, particularly U.S., and in Europe as well.
►
►
Fluctuation of Exchange rates, makes for inconsistent earnings ► Japan’s Economy ► Automotive industry very susceptible to interest rates
►
Cons:
Toyota may be a better buy
Questions
?
Presented By: Zach Bodine March 9, 2006
Stock Fundamentals
► Price ► 52-Week
$29.54 High $30.36
► 52-Week
► Average ► Market
Low
$23.75
539,598 $55.55 Bil
Volume (3 months)
Capitalization
Investment Recommendation
Buy/Hold
Key Ratios
Ratios (all per share) ► P/E Ratio ► Earnings ► Dividend and Yield Financial Strength Ratios ► Quick ► Current ► Long-Term D/E ► Total Debt to Equity ► Return on Equity (per share) ► Return on Assets
13.46 $2.19 0.34 (1.10%) 0.84 1.13 0.839 13.52% 5.03%
Growth Percentages
►
Over the past 5 Years
Revenue Dividend Per Share Earnings Per Share Operating Income
7.2%
19.42% 14.1% 8.2%
Company Description
Automotive Manufacturers – Major 1. Automobiles 2. Motorcycles 3. Power Products 4. Financial Services
HMC Sales Allocation Over the Past 9 Months
3% 4%
12%
Motorcycles Automobiles Financial Services Power Products
81%
►
Honda is the World’s Largest motorcycle manufacturer but is most known for its automotive industry
Global Position
Over 9 month span ► Honda generated 59% of its automobile profit from the North America alone, which was an increase of 2.5% from a year ago. ► However, Asia led in Motorcycle sales with 27.5%, while N.A. had 25.5%. This was opposite of a year ago.
►
Automobile Business 9 months ended Dec. 30, 2005 Japan North America Europe Asia Other Regions Sales Make up 18.50% 58.90% 8.40% 9.30% 4.60% % change from previous year -2.70% 2.40% 0.30% -0.30% 0.30%
HMC Sales Allocation Across Countries (last reported 9 mo.)
7% 11% 18% Japan 10% North America Europe Asia Other Regions
54%
►
Sales for the last 9 months ended Dec 30, 2005 totaled $60.9B, and Sales for all of 2005 totaled $80.5B.
Honda’s Automobile Brands
►
Honda’s principal automobile products include passenger cars under:
►
Legend, Accord, Civic, City, Fit Saloon, Acura RL, Acura TL, and Acura TSX brands Elysion, Odyssey, Step Wagon, Edix, FR-V, Stream, Fit, Jazz, Pilot, Element, CR-V, Acura MDX, and Acura RSX brands
►
Multiwagons, Minivans, Sport utility vehicle, and Sports coupe under:
►
Consumer Reports Top Automobile picks for 2006
Top Small Sedan (less than $20gs) ► Top Family Sedan ($20-$30gs) ► Top Upscale Sedan ($30-40gs) ► Luxury Sedan ► SUV ($30gs and more) ► Small SUV (less than $30gs) ► Top Minivan ► Top Pick-up Truck ► Green Car ► Fun to drive
►
►
Honda Civic Honda Accord Acura TL (Honda) Infiniti M35 (Nissan) Toyota Highlander Hybrid Subaru Forester Honda Odyssey Honda Ridgeline Toyota Prius Subaru Imprezza
Additionally, Honda was 2nd overall in vehicle reliability right behind Lexus
Marketing/Technology
►
► ► ► ► ►
The new ACE System (Advanced Compatibility Engineering) 5 star rating Hybrid Engines ASIMO Jet Engines Manufacturing Nattokinase
Research and Development
►
►
Honda currently has individualized R&D facilities in Japan for motorcycles, automobiles, and power products, and a motorcycle R&D center in China for its increasing market demand. HRI (the Honda Research Institute) is located in Japan, U.S., and Germany.
- Research focus on: robotics technology, automotive safety, ultra lightweight products, and fuel cell technology - Deriving automotive fuel from plants.
►
Honda also has networked facilities in the UK, Germany and Italy (to help focus on the European market more independently)
Management Structure
► President
and Representative Director Takeo Fukui Age: 62
►
Executive Vice-President and Representative Director Satoshi Aoki Age: 60
► Promotion
of Objective Management:
Staff composed of 22 personnel. Two director positions and one auditor assigned annually outside the company. Temporary directors are paid according to how well the Company performs during their tenor.
Image
► New
Jersey Supreme Court: Honda sued for engine failure by a leasee.
Magnussen Warranty Act Engine failure occurred @ 22,000 miles Losing company must cover all legal fees AAM supports Honda
► Clean-
Fuel tax deduction (2005) ► Tax breaks under new energy bill (2006)
Competitive Analysis
HMC F GM TM Industry
Market Cap: Employees: Qtrly Rev Growth (yoy): 5 year Sales Growth Revenue (ttm): Gross Margin (ttm): EBITDA (ttm): Oper Margins (ttm): Net Income (ttm): EPS (ttm): P/E (ttm):
53.25B 137,827 15.80% 9.74% 81.00B 29.58% 8.64B 7.09% 4.05B 2.19 13.22
14.06B 300,000 3.60% 1.06% 177.09B 8.21% 16.10B 1.00% 2.23B 1.048 7.22
10.86B 327,000 -1.20% 1.34% 192.60B 1.53% 5.82B -5.34% -8.45B -15.14 N/A
171.94B 265,753 14.80% 11.12% 173.35B 18.27% 24.35B 8.30% 10.82B 6.61 15.99
53.25B 300.00K 5.60% N/A 177.09B 18.27% 16.10B 7.89% 3.37B 2.19 15.99
PEG (5 yr expected):
P/S (ttm): ROE ROA Dividend Yield
2.06
0.67 14.10% 5.10% 1.12%
2.07
0.08 15.70% 0.80% 5.23%
N/A
0.06 -13.00% -0.70% 11.09%
2.9
1 12.70% 4.70% 1.20%
2.07
0.66
N/A
N/A N/A
Industry Trends
Trend of Companies performing well in foreign markets, but not domestically. GM: Dealing with Health care problems ($100B annually)
► Sold
GMAC Subsid. ► Possibility of bankruptcy in the future
Ford: $1.6B decline in car sales from years ending 04’ – 05’
► Sold
Hertz rentl car business
Chrysler: Changes management around
► Only
U.S. manufacturer not in the red
Volkswagen: high prices, low quality, plus labor force issues Toyota and Honda are prospering well in U.S. market Everyone looks to China for expansion
One Year Price Performance Compared to the S&P 500
Market Performance
5 year Price Performance Compared to the S&P 500
Market Performance
Common Size Financials
Income Statement Revenue (ttm): Revenue Per Share (ttm): Qtrly Revenue Growth (yoy): Gross Profit (ttm): EBITDA (ttm): Net Income Avl to Common (ttm): Diluted EPS (ttm): Qtrly Earnings Growth (yoy): 24.29B 8.64B 4.05B 2.19 -11.70% 81.00B 43.86 15.80%
Balance Sheet Total Cash (mrq): Total Cash Per Share (mrq): Total Debt (mrq): Total Debt/Equity (mrq): Current Ratio (mrq): Book Value Per Share (mrq): 27.54B 0.839 1.128 17.82 5.27B 2.865
Cash Flow Statement
Operating Cash Flow (ttm):
Levered Free Cash Flow (ttm):
5.18B
1.25B
Valuation Data For Return on Equity
Beta = .46 Risk Free Rate = .486 Avg. Market Risk = 11%
Re = Rf + B(Equity Risk Premium) Re = .0486+.46(.11-.0486) =
7.68%
Valuation of Stock Price
► Intrinsic
Value based on Future Cash Flows Growth rate
Normal Growth
Re= 7.68% Owner earnings= $3.14B Growth rate = 4% Second Stage Growth rate = 2.5% Estimated Intrinsic Value= $39.11
► Conservative
Valuation continued
Diminishing Growth
►
► ► ► ►
Using revenue growth of 14.3% from 2003-2004, and 6% from 2004-2005, you could project that revenue growth from 2005-2006 could be equal to: 6/14.3=.4196 .4196*6= 2.52% (new assumed growth rate) Leaving all other variables the same Estimated Intrinsic Value = $34.84
Valuation continued…..
Impressive growth ► By Viewing the table which displays sales in yen over the 9 months ended 12/31/2004, and then looking at the sales in yen for the 9 months ended 12/31/2005 you get the following numbers ► 2004 sales = 6300551 ► 2005 sales =7074255 ► Growth rate= 7074255/6300551= 12.2% ► Adjusted to 10% ► Estimated Intrinsic Value = $62.50
►
Analysts Ratings
RECOMMENDATION SUMMARY*
Strong Buy
finance.yahoo.com
Current 2 1 0 0 0
1 Month Ago 2 1 0 0 0
3 Months Ago 2 1 0 0 0
Mean Recommendation (this week): Mean Recommendation (last week): Change: Industry Mean: Sector Mean: S&P 500 Mean:
1.3 1.3 0 N/A N/A 2.46
Moderate Buy Hold Moderate Hold Sell
Pros and Cons
►
► ► ► ► ► ►
Pros:
►
Fuel/ cost efficient products and technology Extensive R&D programs Superior Technology Moving towards differentiated product lines One of the few currently profiting companies in its industry Objective Management Structure Continuous increase in automotive sales in North America, particularly U.S., and in Europe as well.
►
►
Fluctuation of Exchange rates, makes for inconsistent earnings ► Japan’s Economy ► Automotive industry very susceptible to interest rates
►
Cons:
Toyota may be a better buy
Questions
?
