Toyota Motor: Global Value

10/24/2013 10:00 am EST


Roy Ward

Chief Analyst, Cabot Benjamin Graham Value Investor

Investors with a two-year horizon should consider position in this leading global automaker, which currently trades at a low price-to-book value ratio, advises J. Royden Ward, editor of Cabot Benjamin Graham Value Investor.

Toyota Motor (TM), with headquarters in Tokyo, is the world's largest vehicle manufacturer, based on sales, and production volume.

Toyota generates 36% of revenues from Japan and controls 40% of the auto market in Japan. Sales in North America accounted for 28% of Toyota's total sales.

Approximately 60% of all Toyotas sold in the US are built in North America. The company has 51 manufacturing companies in 27 countries producing its Toyota, Lexus, and Prius brands.

Toyota dominates the rapidly-growing hybrid auto market and expects to launch 21 gas-electric hybrid models by 2015. In addition, the company plans to introduce a fuel-cell vehicle, which runs on hydrogen to produce electricity, by 2015.

North America is currently Toyota's strongest market, boosted by strong demand for the company's RAV4 and Avalon models.

Improving consumer sentiment in Japan, an expected sales rebound in China, and slowly reviving economic conditions all bode well for the next several quarters. New manufacturing facilities in Brazil, China, and India will help Toyota achieve lofty sales targets in emerging markets.

Sales dipped 2% during the past 12 months but should increase 8% during the next 12-month period ending September 30, 2014. EPS surged 55% during the past 12 months and will likely increase another 29% to $12.00 during the next 12 months.

Toyota is ready to launch many new vehicles during the next two years and is also building a number of local manufacturing facilities in foreign countries to produce vehicles more efficiently and profitably.

At 13.7 times current EPS and with a price-to-book value ratio of 1.51, Toyota shares are very reasonably priced.

The dividend yield of 1.4% is attractive and could receive another boost during the next quarter. I expect TM to reach my minimum sell price target of $191.83 within two years.

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