Stock of Toyota Motor (NYSE: TM ) underperformed the broader U.S. index, down nearly 20% year-to-date. Toyota posted mixed results for Q2 FY’23. Revenue rose 22% to 9,218 billion yen ($69 billion), with deliveries up nearly 10% from last year. However, operating profit fell to about 562 billion yen ($4.2 billion), down from 749 billion yen a year earlier as the company faced headwinds amid rising interest rates, foreign exchange volatility and production disruptions due to the coronavirus lockdown in China. While Toyota reiterated its operating profit forecast of 2.4 trillion yen ($17 billion) for fiscal 2023, it cut its production target for the year to 9.2 million vehicles from 9.7 million vehicles. It said profits are expected to be around 20% lower than last year due to supply chain-related headwinds.
Although the results were a mixed bag, we think that Toyota stock is looking at current levels of around $146 per share. Toyota currently trades at about 14x Toyota’s earnings guidance for this year, above peers like GM and Ford, which trade in the single-digits. However, we think that Toyota is the world’s largest automaker due to its highly efficient production and considerable premium. While Toyota’s production may face some near-term headwinds due to semiconductor shortages, the company raised its full-year revenue outlook to 36 trillion yen (about $268 billion) from 34.5 trillion yen, despite supply chain headwinds caused by the devaluation of the Japanese yen. While Toyota is apparently going slow with battery electric vehicle launches, it has spread its bets across hybrids, hydrogen and EVs. Toyota’s overall electric vehicle lineup, which includes hybrids and battery electric vehicles, is expected to account for about 29.5% of its deliveries this year, up from about 28% last year. Toyota also leads the industry in developing solid-state batteries that increase range and reduce charging time, while also making EVs safer. If the company is able to build and deploy solid-state cells at scale, it could give Toyota’s EV business an edge.
We value Toyota stock at about $198 per share, about 35% ahead of the current market price. See our analysis of Toyota valuations for more details on what drives our valuation for Toyota. Also, see our Toyota Revenue Analysis for more details on Toyota’s key revenue streams.
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