It’s earnings announcement time for the automotive world. Time for Detroit to show us if it really has managed a comeback. Below we present you with some pre-earnings discussion and consideration for this week.
Ford Motor Company (F) This classic name, responsible for 17% of the U.S. automotive market, is trading at a very low $15/share, well below fair value in the low 20s on a discounted cash flow basis. EPS for 2011 are forecast at 113% with a five-year projection of nearly 13%. Broad trends suggest that it is stealthily improving its position in the competitive landscape: a consolidation of brands, a gain in market share over the past year and the shedding of debt. On this last point, it was just announced that Ford will redeem, in cash, all 6.50% convertible trust preferred securities, effectively taking off $3 billion dollars in debt from its books and reducing total debt to $16 billion. As earnings announcements loom, these dual events could act as a catalyst to bring its stock price nearer to fair value. It remains treacherous out there, however, as oil pushes higher and Ford’s product mix is notoriously truck heavy. Last month we wrote about a Ford put option play here.
General Motors (GM) When coming from such lows, mega highs are needed to get back up. EPS estimates for this year are thus, understandably hyperbolic: 574%! (For some leveled perspective, GM is looking at a much more reasonable five-year EPS projection of 24%.) We’ll see this week if we’re on track. The leader of the U.S. car market, with 19% of it in its pocket, GM has fought a very rocky battle over the past few years. With new leadership that has an eye on a clean debt book, a condensed and somewhat diversified product portfolio and healthy North American operations it looks like GM, dependent on consumer behavior of course, might be able to take off its boxing gloves for a bit, or at least get itself out of the corner and land some punches of its own.
Honda Motors (HMC) Steady, solid and efficient. These words describe Honda’s vehicles as much as its fundamentals. Like its competitors its EPS projections are high this year at 96% for 2011. Over the next 5 years it projects an EPS of 14.9%. The good news for Honda is that as oil prices look to remain high and visible in the media, consumers can be expected to lean toward Honda’s traditional strong suit—fuel efficient vehicles. It has the technology and pricing ability to gain market share in this key area, playing to its strength. We’ll see how projected performance matches up with its earnings announcement.
Nissan Motors (OTCPK:NSANY) Nissan surprisingly has negative EPS expectation in 2011 with analysts predicting a fall of 149% in EPS, while next year’s EPS estimates come in around 210% and the five-year projections are for 62% growth in EPS. Despite this year’s projections, its sales in January were up over 14%. Additionally, its partnership with Renault seems to be bearing fruit through the development of hybrid technology cars that are likely to grow in demand.
Toyota Motors (TM) Tarnished by product defects, a botched recall and resulting PR mess, Toyota’s sterling brand reputation has suffered. Sales in 2010 were adversely affected. Like other automotives though, Toyota is looking for major gains in EPS in 2011 out through its five-year projections. 2011 EPS projections are for 148% growth while five-year figures are for 50% growth in EPS. With solid financial footing and a recovery in consumer demand over the next few years, Toyota, barring any other mishaps and mismanagement of those mishaps, should be back on it’s a game.
Tata Motors (TTM) The world really is changing and one of the major corporate emblems of that change is Tata Motors. With a product offering straddling the extremes of the market — Tata Nano and the Jaguar brand — Tata is a luminary amongst BRIC corporations. But, for all of this hype, it does face many challenges from competitors competing in is ultra low-cost space. Operating in BRIC’s vowel market, where consumers have continued to be avid consumers, Tata Motors didn’t experience the lows of some of its U.S. and Japanese counterparts, establishing healthy EPS growth of 36% over the past five years. Thus, 2011 EPS projections are somewhat more tempered at 152%, but its positioning in growth markets might in part explain its high five-year EPS projection at 35%.