TM: Toyota Stock Poised to Move Into the Passing Lane

by Louis Navellier | February 5, 2014 8:00 am

Welcome to the Stock of the Day.

toyotaJapan’s benchmark Nikkei 225 index plunged 4% Tuesday on emerging market fears, but one Japanese company is holding steady. Toyota Motor (TM[1]) just posted healthy top- and bottom-line growth for the third quarter and management believes it will “Move Forward” even more from here.

Is it time to go for a ride with Toyota stock? Let’s find out.

Company Overview

Japan’s Toyota Corp. is the world’s third largest carmaker, just behind General Motors (GM[2]) and Volkswagen AG (VLKAY[3]). In its 75 year history, the company has manufactured over 200 million cars and has expanded its operations to include over 330,000 employees. A member of the Major Auto Manufacturers industry, Toyota is an industry leader in terms of size, long-term growth rate and its 2.2% annual dividend yield.

Earnings Rundown

The world’s best-selling carmaker reported healthy net sales and earnings growth for the fiscal third quarter. Notably Toyota saw annual sales growth in every key region, including the U.S., Europe and Japan. Compared with the year ago quarter, net revenues climbed 24% to 6.59 trillion yen ($64.2 billion). The weak yen also helped boost earnings. Over the same period, net income boomed 426% to 525.46 billion yen ($5.2 billion). This trumped analyst expectations of 437 billion yen ($4.3 billion) in profit.

Future Outlook

Encouraged by these results, Toyota lifted its FY 2014 outlook. The company now sees net revenue of 25.5 trillion yen ($255 billion) and a record profit of 1.90 trillion yen ($19 billion). Earlier, the company had predicted 1.67 trillion yen ($16.5 billion) in profits.

Compared with FY 2013, this new guidance represents 8.8% annual sales growth and 86% earnings growth. Toyota’s forecast is also above the Street view, which calls for $247.06 billion in revenue for 2014.

Current Ratings

Before you buy any stock, you should always run it through my Portfolio Grader[4] ratings system.

Right now, TM is a C-ranked hold due to mixed fundamentals (C Fundamental Grade) and tapering institutional buying pressure (C Quantitative Grade). If you look at the fundamental breakdown, however, you’ll see that Toyota was struggling in terms of sales growth (F), earnings surprises (D), analyst earnings revisions (D) and cash flow (D).

It’s quite possible that once I plug in the latest earnings results that these metrics will improve. So while I have Toyota stock as a hold right now, I would run it through Portfolio Grader first thing on Monday morning to see if it has been upgraded to a buy.

Bottom Line: As of this posting I consider TM a C-rated hold.

Sound Off: What do you think about TM? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook. For more stock grades and commentary, please visit[5]

  1. TM:
  2. GM:
  3. VLKAY:
  4. Portfolio Grader:

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