- Revenues, Earnings, Operating Income All on the Rise
- Company Boosted by Yen Tailwinds
- Outlook Strengthening on Climbing Global Sales
One of the largest car companies in the world, Toyota Motors (TM), has seen its star rising recently as strong tailwinds boost the bottom line. The company is divided into three main branches: automotive, which produces, sells, and leases cars and other motor vehicles; their financial subsidiaries, which handle financing for their products and services; they also work in home-building, production of pleasure boats, and intelligent transportation services. In recent years, Toyota has seen an upswing in their revenues, shares, and operating income, owing to several important factors which will prove strong catalysts for future growth.
The Fundamental Picture
Toyota’s trajectory has been highly positive in recent months, due to the company’s strong performance in international markets, as well as external factors. Company shares are currently valued at ¥8,284, and investor confidence is high, with many forecasting continued positive growth. Financially, the company saw revenue rise 6%, with an impressive 20% gain in their operating income. This has been due to strong sales overseas for the company, even while sales in Japan have slid slightly. Locally, Toyota has been hurt by the devaluation of the Yen relative to the dollar and a 3% hike in Japan’s sales tax. These factors led the company’s sales to drop by 80,000 units in the current year. Despite this drop, Toyota’s operating income in Japan has actually increased by ¥61.3 billion versus the prior year.
Outside of Japan, Toyota has benefited from the Yen’s devaluation and its weakness against the dollar in particular. Toyota has been banking on this disparity creating lower selling prices, and its ability to meet increased demand for their cars. During the fiscal year ended in 2015, the company saw an increase in units sold of 186,000 units, with an operating income increase of ¥196.4 billion year on year. Even though they have seen some market share in the United States eroded by Ford (F) and GM (GM), the company still saw an 8.1% increase (year-to-date) in fiscal year 2016 sales. Toyota, which has announced record revenues for the past two fiscal years, is on track to once again break their own records and have forecasted a jump in net revenues to over ¥265.5 billion for fiscal year 2016, with a ¥49.5 billion improvement in operating income.
This confidence has been reflected in Toyota’s shares, which still show a solid 2.05% dividend. The company’s share prices have been steadily rising in the past year, and momentum shows few signs of fading. Analyst consensus expects that the company’s earnings per share will remain fairly steady for fiscal year 2016 but could nevertheless see a surprise upgrade on the back of improving fundamentals. Even though the company is expected to see a dip in local sales owing to increased taxes, these predictions largely match up with Toyota’s own optimistic forecast for fiscal year 2016 with exports and overseas sales set to rise even further. Thus, despite a slight drop in quarterly local numbers, Toyota’s international diversification is still pushing strong performance in overseas markets after recording a tremendous fiscal year in 2015 and boasting an improved outlook for fiscal year 2016
The Technical Take
From a technical standpoint, even though Toyota shares have greatly benefited from the devaluation of the Yen, the breakaway gap higher back in November seems to have run its course as prices test an important support level. Shares gained as much as 28% from November and now look poised for a deeper technical correction after retracing nearly 30% of the move higher. Textbook technical analysis applied to this particular situation means that the correction could be between 30-60% of the move, or in this particular case ¥585-1170 in downside before resuming the potential uptrend. However, should prices break below the gap higher, this could indicate a potential longer-term reversal in prices. Nevertheless, should the company continue to experience the tailwinds from the Yen, any weakness in the Yen will likely correlate to further gains in Toyota shares, retesting 52-week highs at ¥5783 should earnings forecasts come to fruition.
Conclusion
The improvement in Toyota’s fundamentals since the Bank of Japan implemented more loose monetary policy measures has seen the company’s fortunes vastly recover and advance to the upside as diversified global operations, improved revenues, stronger income, and better earnings buoy the company’s shares. The outlook is strong for the company especially considering the guidance and dividend with a great entry point on the long side at present levels. However, should prices fall further, completing a 60% retracement of the prevailing uptrend, a better entry point might be slightly lower should the present momentum lower persist. Overall, strong fundamentals and supportive technicals make Toyota a solid upside play.
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