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
Volume (3 months)
539,598
► Average
► 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%
Dividend Per Share
19.42%
Earnings Per Share
14.1%
Operating Income
8.2%
Company Description
Automotive Manufacturers –
Major
1. Automobiles
2. Motorcycles
3. Power Products
4. Financial Services
HMC Sales Allocation Over the Past 9 Months
3% 4%
12%
Motorcycles
Automobiles
Financial Services
Power Products
81%
►
Honda is the World’s Largest motorcycle manufacturer
but is most known for its automotive industry
Global Position
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.
HMC Sales Allocation Across Countries (last
reported 9 mo.)
►
7%
11%
Japan
Sales Make
up
% change from
previous year
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%
North America
10%
Europe
Asia
Other Regions
54%
Automobile Business
9 months ended
Dec. 30, 2005
18%
►
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:
►
Multiwagons, Minivans,
Sport utility vehicle, and
Sports coupe under:
►
Legend, Accord, Civic,
City, Fit Saloon, Acura
RL, Acura TL, and
Acura TSX brands
►
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
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 2nd overall in vehicle reliability right behind Lexus
Marketing/Technology
►
►
►
►
►
►
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
F
GM
TM
Industry
Market Cap:
53.25B
14.06B
10.86B
171.94B
53.25B
Employees:
137,827
300,000
327,000
265,753
300.00K
Qtrly Rev Growth (yoy):
15.80%
3.60%
-1.20%
14.80%
5.60%
5 year Sales Growth
9.74%
1.06%
1.34%
11.12%
N/A
Revenue (ttm):
81.00B
177.09B
192.60B
173.35B
177.09B
29.58%
8.21%
1.53%
18.27%
18.27%
8.64B
16.10B
5.82B
24.35B
16.10B
7.09%
1.00%
-5.34%
8.30%
7.89%
4.05B
2.23B
-8.45B
10.82B
3.37B
EPS (ttm):
2.19
1.048
-15.14
6.61
2.19
P/E (ttm):
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
Gross Margin (ttm):
EBITDA (ttm):
Oper Margins (ttm):
Net Income (ttm):
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
►
►
►
►
►
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…..
►
►
►
►
►
►
►
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
Current
1 Month
Ago
Strong Buy
2
2
2
Moderate Buy
1
1
1
Hold
0
0
0
Moderate Hold
0
0
0
Sell
0
0
0
RECOMMENDATION SUMMARY*
Mean Recommendation (this week):
1.3
Mean Recommendation (last week):
1.3
Change:
Industry Mean:
0
N/A
Sector Mean:
N/A
S&P 500 Mean:
2.46
3 Months
Ago
Pros and Cons
►
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
?