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Honda (HMC) Hit by Operating Costs, Collaboration a Tailwind

Zacks Equity Research

On Aug 19, we issued an updated research report on Honda Motor Co., Ltd. HMC.

The company is a leading manufacturer of automobiles and the largest producer of motorcycles in the world. It is recognized internationally for its wide variety of products, ranging from small general-purpose engines to specialty sports cars, which incorporate its efficient internal combustion engine technologies.

In first-quarter fiscal 2020, the company reported operating profit of ¥252.4 billion, down 15.7% from the year-ago period. The decline can be attributed to high selling, general and administrative expenses; adverse impacts of foreign currency; and lowered sales revenues. The negative factors were partly offset by continuous cost-reduction efforts.

In fact, the company has been facing higher operating costs and expenses recently, thanks to rising research and development costs. Also, Honda has been embroiled into several recall crises lately. In fact, it is the largest customer of the faulty Takata airbags that can explode and shoot out metal fragments after a crash.

However, through the company’s Vision 2030 strategy, it is focusing on strategies to boost coordination between research and development as well as procurement and manufacturing of products. Further, it is undertaking frequent collaborations to expand business. Moreover, the company boasts strong financial position.

In the past three months, shares of Honda have underperformed the industry it belongs to. Shares of the company have lost 9.4% against the industry’s growth of 1.8%.


Zacks Rank & Stocks to Consider

Currently, Honda carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the auto space are Fox Factory Holding Corp FOXF, CarMax, Inc. KMX and Gentex Corporation GNTX, each presently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected long-term growth rate of 16.7%. In the past six months, shares of the company have rallied 23.2%.

CarMax has an expected long-term growth rate of 12.6%. In the past six months, shares of the company have risen 37.8%.

Gentex has an expected long-term growth rate of 5%. In the past six months, shares of the company have returned 30.2%.

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