Honda

Honda Motor
Company
Presented By: Zach Bodine
March 9, 2006

Stock Fundamentals
► Price

$29.54

► 52-Week

High

$30.36

► 52-Week

Low

$23.75

► Average

Volume (3 months)

539,598

► Market

Capitalization

$55.55 Bil

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

7.2%
19.42%

Dividend Per Share
14.1%
Earnings Per Share
Operating Income

8.2%

Company Description
Automotive
Manufacturers – Major
1. Automobiles
2. Motorcycles
3. Power Products
4. Financial Services

►

Honda is the World’s Largest motorcycle manufacturer
but is most known for its automotive industry

Global Position
►
►

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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

% change from
previous year

Sales
Make up

Japan

18.50%

-2.70%

North America

58.90%

2.40%

Europe

8.40%

0.30%

Asia

9.30%

-0.30%

Other Regions

4.60%

0.30%

►

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

►

Multiwagons, Minivans,
Sport utility vehicle,
and Sports coupe
under:

►

Elysion, Odyssey, Step
Wagon, Edix, FR-V,
Stream, Fit, Jazz, Pilot,
Element, CR-V, Acura
MDX, and Acura RSX
brands

Consumer Reports Top Automobile picks for
2006

►
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►

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 2 nd overall in vehicle reliability right behind Lexus

Marketing/Technology
►

►
►
►
►
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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

► Promotion

►

Executive Vice-President
and Representative
Director
Satoshi Aoki
Age: 60

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

Market Cap:

53.25B

14.06B

10.86B

171.94B

53.25B

Employees:

137,827

300,000

327,000

265,753

300.00K

15.80%

3.60%

-1.20%

14.80%

5.60%

9.74%

1.06%

1.34%

11.12%

N/A

Revenue (ttm):

81.00B

177.09B

192.60B

173.35B

177.09B

Gross Margin (ttm):

29.58%

8.21%

1.53%

18.27%

18.27%

EBITDA (ttm):

8.64B

16.10B

5.82B

24.35B

16.10B

Oper Margins (ttm):

7.09%

1.00%

-5.34%

8.30%

7.89%

Net Income (ttm):

4.05B

2.23B

-8.45B

10.82B

3.37B

2.19

1.048

-15.14

6.61

2.19

13.22

7.22

N/A

15.99

15.99

PEG (5 yr expected):

2.06

2.07

N/A

2.9

2.07

P/S (ttm):

0.67

0.08

0.06

1

0.66

ROE

14.10%

15.70%

-13.00%

12.70%

N/A

ROA

5.10%

0.80%

-0.70%

4.70%

N/A

Dividend Yield

1.12%

5.23%

11.09%

1.20%

N/A

Qtrly Rev Growth (yoy):
5 year Sales Growth

EPS (ttm):
P/E (ttm):

F

GM

TM

Industry

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

Market Performance

One Year Price Performance Compared to the S&P 500

Market Performance

5 year Price Performance Compared to the S&P 500

Common Size Financials
Income Statement
Revenue (ttm):

81.00B

Revenue Per Share (ttm):

43.86

Qtrly Revenue Growth (yoy):

15.80%

Gross Profit (ttm):

24.29B

EBITDA (ttm):

8.64B

Net Income Avl to Common (ttm):

4.05B

Diluted EPS (ttm):

2.19

Qtrly Earnings Growth (yoy):

-11.70%

Balance Sheet
Total Cash (mrq):

5.27B

Total Cash Per Share (mrq):
Total Debt (mrq):

2.865
27.54B

Total Debt/Equity (mrq):

0.839

Current Ratio (mrq):

1.128

Book Value Per Share (mrq):

17.82

Cash Flow Statement
Operating Cash Flow (ttm):

5.18B

Levered Free Cash Flow (ttm):

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

► Conservative

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

Valuation continued
Diminishing Growth
►

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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…..
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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

finance.yahoo.com

Curren
t

1 Month
Ago

3 Months
Ago

RECOMMENDATION SUMMARY*

 

 

 

 

Strong Buy

2

2

2

Moderate
Buy

1

1

1

Hold

0

0

0

Moderate
Hold

0

0

0

Sell

0

0

0

Mean Recommendation (this week):
Mean Recommendation (last week):
Change:

1.3
1.3
0

Industry Mean:

 N/A

Sector Mean:

N/A 

S&P 500 Mean:

2.46

Pros and Cons
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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.

Cons:

Fluctuation of Exchange rates, makes for inconsistent earnings
Japan’s Economy
Automotive industry very susceptible to interest rates
Toyota may be a better buy

Questions

?