Leading automaker Ford Motor Company (F) reported solid second-quarter 2022 operating results. Its total revenue grew 50.2% year-over-year to $40.19 billion, while its adjusted EPS came in at $0.68, up 423.1% year-over-year. The company’s first-generation EVs, the Mustang Mach-E, the Lightning, and the E-transit, are witnessing high market demand.
However, the company warned investors last month that it expects to incur an additional $1 billion in costs during the third quarter of fiscal 2022 due to inflationary pressures and supply chain issues. The company stated that parts shortages would lower deliveries, affecting nearly 40,000 to 45,000 vehicles, mainly high-margin trucks and SUVs.
Moreover, analysts seem bearish on F’s growth prospects, expecting its EPS to decline 6.1% year-over-year to $1.88. Also, the stock has slumped 24.1% over the six months and 45.9% year-to-date amid lingering macro headwinds.
Despite chip shortage and supply chain issues, the automotive industry continues to witness strong demand, driven by an increased transition to electric vehicles (EVs) and supportive government policies. EV sales came to 2 million in the first quarter of 2022, up 75% year-over-year. Moreover, the International Energy Agency (IEA) expects EV sales to hit an all-high this year.
Furthermore, the Senate recently passed the CHIPS and Science Act which allocated $54.20 billion to boost semiconductor production nationwide and reduce supply chain issues. This is expected to benefit automobile manufacturers significantly. According to a report by Maximize Market Research, the automotive market in the United States is projected to reach $37.80 million by 2029, growing at a CAGR of 13.2%.
Hence, investors should consider scooping up shares of fundamentally strong automakers Volkswagen AG (VWAGY), Honda Motor Co., Ltd. (HMC), and Isuzu Motors Limited (ISUZY) instead of F.
Volkswagen AG (VWAGY)
Headquartered in Wolfsburg, Germany, VWAGY manufactures and sells automobiles primarily in Europe, North America, South America, and Asia-Pacific. The company operates through four segments: Commercial Vehicles; Power Engineering; Financial Services; and Passenger Cars and Light Commercial Vehicles.
Yesterday, VWAGY announced plans to invest €2.4 billion ($2.34 billion) in a joint venture with Chinese AI specialist Horizon Robotics. The carmaker agreed to partner with Horizon Robotics “to accelerate the development of automated driving and drive the repositioning of our China business.” The company expects to retain its share in its biggest market by betting on AI-assisted and driverless cars.
For the second quarter of the fiscal year 2022 ended June 30, 2022, VWAGY’s sales revenue increased 3.3% year-over-year to €69.54 billion ($67.67 billion). Moreover, the company’s cash flow from investing activities came in at €7 billion ($6.81 billion), up 48.6% year-over-year.
VWAGY’s forward EV/Sales of 0.87x is 15.9% lower than the industry average of 1.03x. Its forward EV/EBITDA of 6.32x is 22.5% lower than the industry average of 8.16x. Likewise, the stock’s forward Price/Sales multiple of 0.22 compares to the industry average of 0.79.
Analysts expect VWAGY’s revenue for the fiscal 2022 fourth quarter (ending December 2022) to increase 9.5% year-over-year to $76.23 billion. In addition, the company’s revenue for the next year (ending December 2023) is expected to grow 3.3% year-over-year to $276.22 billion.
The stock has gained marginally over the past five days to close the last trading session at $16.03.
VWAGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY has a grade of A for Value and B for Quality and Stability. Within the Auto & Vehicle Manufacturers industry, it is ranked #4 out of 64 stocks.
Beyond what is stated above, we’ve also rated VWAGY for Momentum, Sentiment, and Growth. Get all VWAGY ratings here.
Honda Motor Co., Ltd. (HMC)
Based in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, and power products in Japan, North America, Europe, Asia, and internationally. The company operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
In addition, the company sells spare parts and provides after-sales services directly through retail dealers, independent distributors, and licensees.
This month, HMC and LG Energy Solution announced that their new joint venture (JV) battery plant would be located in Fayette County, Ohio. The companies' overall investment related to the joint venture is expected to reach $4.4 billion. The EV batteries produced at the JV plant will be provided to Honda plants for EV production and power new EV models.
In the fiscal 2023 first quarter ended June 30, 2022, HMC’s sales revenue increased 6.9% year-over-year to ¥3.58 trillion ($24.35 billion). The company’s comprehensive income for the period came in at ¥870.73 billion ($5.92 billion), up 148.9% year-over-year. In addition, cash inflows from operating activities grew 8,422.4% from the year-ago value to ¥618.13 billion ($4.20 billion).
Furthermore, as of June 30, 2022, the company had ¥3.63 trillion ($24.69 billion) in cash and cash equivalents.
The stock’s 0.60x forward EV/Sales is 41.7% lower than the 1.03x industry average. Its EV/EBITDA multiple of 7.47 compares to the industry average of 8.16. Also, in terms of forward Price/Cash Flow, HMC is trading at 2.31x, 76.3% lower than the 9.73x industry average.
Analysts expect HMC’s revenue and EPS of $116.20 billion and $3.26 for fiscal 2023 (ending March 2023), indicating a rise of 335.1% and 1.8% year-over-year, respectively. Furthermore, the company’s revenue and EPS for the next fiscal year are expected to grow 10.6% and 21.9% year-over-year to $128.46 billion and $3.97, respectively.
In addition, the company has surpassed the consensus revenue estimates in three of the trailing four quarters. Over the last five days, the stock has gained 0.6% to close the last trading session at $22.30.
HMC’s POWR Ratings reflect this promising outlook. It has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and a B for Stability and Quality. It is ranked #9 of 64 stocks in the Auto & Vehicle Manufacturers industry. Click here to see the additional ratings for HMC’s Growth, Sentiment, and Momentum.
Isuzu Motors Limited (ISUZY)
Headquartered in Tokyo, Japan, ISUZY manufactures and sells commercial vehicles, light commercial vehicles, and diesel engines and components worldwide. The company’s products include light, medium, and heavy-duty trucks and buses, passenger pickup vehicles, tractors, sport utility vehicles, and industrial engines.
ISUZY’s sales revenue came in at ¥688.20 billion ($4.68 billion) for the fiscal 2023 first quarter ended June 30, 2022, up 23% year-over-year. Also, its gross profit came in at ¥129.63 billion ($881.77 million), up 17.2% year-over-year. In addition, the company’s total assets came in at ¥2.93 trillion ($19.93 billion) as of June 30, 2022, compared to ¥2.86 trillion ($19.45 billion) as of March 31, 2022.
ISUZY’s forward EV/Sales of 0.54x is 47.7% lower than the industry average of 1.03x. Its forward EV/EBITDA of 5.37x is 34.2% lower than the industry average of 8.16x. Moreover, the stock’s forward Price/Sales multiple of 0.41 compares to the industry average of 0.77.
The company’s revenue for the current year (ending March 2023) is expected to increase 144.5% year-over-year to $21.02 billion. Also, Street expects its revenue for fiscal 2024 to grow 6% year-over-year to $22.28 billion. The stock has declined 4.2% over the past six months to close the last trading session at $11.33.
It’s no surprise that ISUZY is rated a Buy in our POWR Ratings system. The stock also has a B grade for Value, Sentiment, Quality, and Stability.
The stock is ranked #6 in the same industry. We’ve also rated ISUZY for Momentum and Growth. Get all ISUZY ratings here.
VWAGY shares were unchanged in premarket trading Friday. Year-to-date, VWAGY has declined -43.64%, versus a -21.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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