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Honda Motor Company. Presented By: Zach Bodine March 9, 2006. Price 52-Week High 52-Week Low Average Volume (3 months) Market Capitalization. $29.54 $30.36 $23.75 539,598 $55.55 Bil. Stock Fundamentals. Investment Recommendation. Buy/Hold. Ratios (all per share) P/E Ratio

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honda motor company

Honda Motor Company

Presented By: Zach Bodine

March 9, 2006

stock fundamentals
Price

52-Week High

52-Week Low

Average Volume (3 months)

Market Capitalization

$29.54

$30.36

$23.75

539,598

$55.55 Bil

Stock Fundamentals
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%

Key Ratios
growth percentages
Over the past 5 Years

Revenue

Dividend Per Share

Earnings Per Share

Operating Income

7.2%

19.42%

14.1%

8.2%

Growth Percentages
company description
Company Description

Automotive Manufacturers – Major

  • Automobiles
  • Motorcycles
  • Power Products
  • Financial Services
  • Honda is the World’s Largest motorcycle manufacturer but is most known for its automotive industry
global position
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.

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 Automobile Brands

Honda’s principal automobile products include passenger cars under:

Legend, Accord, Civic,

City, Fit Saloon, Acura RL, Acura TL, and Acura TSX brands

Multiwagons, Minivans, Sport utility vehicle, and Sports coupe under:

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
Consumer Reports Top Automobile picks for2006
  • 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
Marketing/Technology
  • The new ACE System (Advanced Compatibility Engineering)
  • 5 star rating
  • Hybrid Engines
  • ASIMO
  • Jet Engines Manufacturing
  • Nattokinase
research and development
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
Management Structure
  • President and Representative Director

Takeo Fukui

Age: 62

  • Executive Vice-President and Representative Director

Satoshi Aoki

Age: 60

  • Promotion 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
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)
industry trends
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
valuation data for return on equity
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
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
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 continued1
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
pros and cons
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