Zacks Industry Outlook Toyota, BYD Co and Honda

For Immediate ReleaseChicago, IL – November 27, 2024 – Today, Zacks Equity Research Toyota TM, BYD Co Ltd BYDDY and Honda HMC.Industry: Foreign AutosLink: https://www.zacks.com/commentary/2375072/ride-the-foreign-auto-industrys-bullishness-with-these-3-stocksThe Zacks Automotive – Foreign industry is navigating mixed fortunes amid shifting economic conditions and evolving consumer preferences. In China, vehicle sales are surging despite economic headwinds, fueled by robust demand for electric and hybrid models, which now account for over half of total sales.Conversely, Europe’s EV market is grappling with sluggish growth, declining registrations and rising competition from Chinese imports, thus putting pressure on automakers to reassess strategies. Meanwhile, Japan's auto sector shows cautious optimism, with modest sales growth aligned with signs of economic recovery. Given the industry dynamics, a few stocks like Toyota, BYD Co Ltd and Honda make for prudent investment choices now.Industry OverviewCompanies in the Zacks Automotive – Foreign industry are involved in designing, manufacturing and selling vehicles, components as well as production systems. The foreign automotive industry is highly dependent on business cycles and economic conditions. China, Japan, Germany and India are some of the key foreign automotive manufacturing countries. The widespread usage of technology is resulting in the fundamental restructuring of the market.Stricter emission and fuel-economy targets and ramp-up of charging infrastructure, as well as supportive government policies, are boosting sales of green vehicles. With almost all firms intensifying their electrification game, competition is getting tougher with each passing day. Foreign automakers are now actively engaged in the R&D of electric and autonomous vehicles, fuel efficiency and low-emission technologies.Key Themes Shaping the IndustryChina’s Growing Vehicle Sales: China's auto industry is witnessing growth despite economic challenges and global trade headwinds. Passenger vehicle sales rose 11.2% year over year to 2.28 million units in October, marking the fastest growth since January, driven by domestic leader BYD. Sales in the first 10 months of 2024 reached 17.99 million vehicles, up 3% from the prior year, according to the China Passenger Car Association (CPCA).Notably, electric and plug-in hybrid vehicles led the charge, with sales soaring 56.7% year over year and accounting for 52.5% of total sales, outpacing gasoline cars for the fourth consecutive month. The CPCA forecasts a 5% annual rise in car sales for 2024, underscoring the sector's resilience and transition toward electrification. However, concerns linger over China’s economic slowdown and new tariffs imposed on Chinese EVs by the United States, European Union and Canada, which could impact exports and dampen momentum in the world's largest auto market.Cautious Optimism in Japan’s Auto Market: Japan's auto industry showed modest growth in October 2024, with new vehicle sales rising just over 1% year over year to 402,310 units, according to Japan Automobile Manufacturers Association (JAMA). This uptick aligns with signs of economic recovery, as Japan's real GDP grew 0.3% year on year in the third quarter, marking a rebound after two quarters of decline.The government, under newly elected prime minister Ishiba Shigeru, is expected to implement policies to stimulate economic growth, including boosting wages, enhancing household incomes, revitalizing regional economies, reskilling the workforce and promoting corporate investments. These initiatives could create a supportive environment for the auto industry. Given the sector's cyclical nature, vehicle sales in Japan are likely to gain momentum as economic conditions improve, bolstered by targeted government efforts to enhance domestic demand.Europe’s EV Market is Struggling: Europe's auto industry faces a challenging landscape, marked by modest growth in battery-electric vehicle (BEV) registrations, which rose 2.4% in October 2024 to 124,907 units. However, BEV market volume in the first 10 months of the year remains 4.9% lower than last year, with a 14.4% market share.A sharp 26.6% decline in Germany's BEV registrations underscores the struggles, driven by the absence of robust policies to advance e-mobility. Key gaps include inadequate public investments in charging infrastructure, limited consumer incentives and cost pressure on manufacturers.Compounding these challenges is increased competition from Chinese imports, which are driving European automakers to relocate production to cost-efficient regions like the United States and China, with some vehicles re-imported to Europe. This strains profitability. Many European auto biggies, including Volkswagen, Mercedes Benz and BMW, have seen their profits fall this year. In fact, Volkswagen is considering unprecedented factory closures in Germany.Zacks Industry Rank Indicates Solid ProspectsThe Zacks Automotive – Foreign industry within the broader Zacks Auto-Tires-Trucks sector currently carries a Zacks Industry Rank #71, which places it in the top 28% of around 250 Zacks industries.The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.Before we present a couple of stocks that are worth adding to your portfolio, let’s look at the industry’s recent stock market performance and current valuation.Industry Lags Sector and S&P 500The Zacks Automotive – Foreign industry has underperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has lost 17.9% against the S&P 500 and the sector’s growth of roughly 31% and 16%, respectively.Industry's Current ValuationSince automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio.Based on trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 9.20X compared with the S&P 500’s 18.54X and the sector’s 19.85X.Over the past five years, the industry has traded as high as 12.59X, as low as 5.65X and at a median of 9.13X.3 Stocks to BuyBYD: This Chinese automaker is involved in vehicle manufacturing, secondary batteries and mobile components. Its vertically integrated model, spanning mining, batteries and chips, provides a competitive edge. With a strong global presence across Asia, Europe and Latin America, BYD’s diverse EV lineup, including models like Seagull and Denza, has gained international acclaim.The launch of the DM 5.0 hybrid system and e-Platform 3.0 underscores its focus on affordability, efficiency, and enhanced charging capabilities. In the last reported quarter, BYD achieved record revenues of RMB 201.12 billion, up 24% year over year. Net income rose 11% to RMB 11.61 billion. Gross margin improved to 21.89%. NEV sales surpassed 1.13 million units, reflecting 38% annual growth.BYD currently sports a Zacks Rank #1 (Strong Buy) and has a Value Score of B. The consensus mark for 2024 and 2025 revenues implies year-over-year growth of 25% and 21%, respectively. The Zacks Consensus Estimate for 2024 and 2025 earnings per share has been upwardly revised by 35 cents and 39 cents over the past 30 days to $3.84 and $4.76, implying year-over-year growth of 31.5% and 24%, respectively.You can see the complete list of today’s Zacks #1 Rank stocks here.Toyota: While Toyota delivered weak results in the last reported quarter, Japan’s auto giant is undertaking various strategic steps to address challenges. These include restoring production, optimizing inventory to manage incentives and reducing complexity to streamline operations and improve efficiency. Despite short-term struggles, Toyota remains committed to rewarding shareholders through a generous dividend policy.What sets Toyota apart is its strategic focus on hybrid vehicles over fully battery-electric vehicles (BEVs), offering a more affordable and scalable solution for emission reduction. However, Toyota is not ignoring EVs. It is continuing to invest in electrification with solid-state batteries and an expanding lineup.Toyota currently carries a Zacks Rank #2 (Buy) and has a Value Score of B. The consensus mark for next fiscal year’s earnings have moved up 26 cents a share to $23.85, implying year-over-year growth of 10%. TM surpassed earnings estimates in three out of the four trailing quarters and missed once, the average earnings surprise being 45.5%.Honda: Toyota’s closest peer, Honda, is also one of the leading names in the auto industry and is known for its reliable vehicles. The surge in hybrid adoption is boosting HMC's sales. The CR-V and Accord hybrids are performing well. The company aims to sell 1 million hybrids this year and double production to 2 million by 2030.HMC's electrification push is also praiseworthy. Honda 0 Series — the flagship series of Honda EVs — will be launched in North America in 2026 and then globally, with seven models by 2030. The company aims to produce 2 million EVs annually by 2030 and is making efforts to lower overall production costs by 35%. While Honda is accelerating investments in electrification and software, it also remains committed to increasing shareholders’ returns via dividends and stock buybacks.Honda currently carries a Zacks Rank #2 and has a Value Score of B. The consensus mark for fiscal 2025 and 2026 revenues implies modest year-over-year growth of 3% and 0.05%, respectively. HMC surpassed earnings estimates in three out of the four trailing quarters and missed once, the average earnings surprise being 32.9%.Why Haven't You Looked at Zacks' Top Stocks?Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.Today you can access their live picks without cost or obligation.See Stocks Free >>Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.Media ContactZacks Investment Research800-767-3771 ext. 9339support@zacks.comhttps://www.zacks.comPast performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance  for information about the performance numbers displayed in this press release.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.1% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Toyota Motor Corporation (TM): Free Stock Analysis Report Honda Motor Co., Ltd. (HMC): Free Stock Analysis Report Byd Co., Ltd. (BYDDY): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks