Honda (HMC) stock forecast: Moving forward with a new structure and new products
The Japanese company is the world’s largest manufacturer of motorcycles and one of the most prominent car makers, while also creating engines for everything from lawn mowers to Formula 1.
Despite this history, Honda’s stock has lagged behind peers in recent years, slipping behind more innovative challengers in the electric vehicle market such as Tesla. It faces headwinds from supply constraints linked to a global shortage of semiconductors.
New partnerships with the likes of General Motors in North America and moves towards products that run on electricity, alongside a corporate restructuring designed to centralise decision making and improve efficiencies, offer some hope for investors, but the stock has underperformed the market in 2021, down 6.19% year-to-date (October 26).
Analysts remain broadly neutral on the Honda stock forecast, arguing that the high capital investment involved in the move to electric vehicles and ongoing industry challenges mean that margins could suffer in the short-term.
Honda stock analysis
Honda shareholders have endured volatility over the past few years. The stock peaked at a high of around $37.29 in February 2018, but fell to as low as $19.41 at the beginning of the pandemic last March.
Since then, Honda has regained some ground along with broader market trends, but has slightly lagged the S&P 500, which increased 34.9% over the past 12 months, compared to 27% for Honda.
While moves to control costs and headline-grabbing decisions such as the company’s exit from its decade-long involvement in Formula 1 racing to focus on the development of electric vehicles, its stock has remained mired.
Honda’s 2030 Vision aims for electric vehicles to make up 66% of total automotive sales by 2030, and to achieve carbon neutrality by 2050.
Honda latest earnings
In the second quarter, Honda posted a consolidated operating profit of ¥243.2bn, an increase of ¥356.9bn on the previous year, due to increased unit sales and the sharp downturn experienced during the first half of 2020 as the global pandemic struck.
Profit was boosted by increased sales across all operating units, with the key automotive unit rallying in North America, increasing sales revenue by over ¥2bn to ¥15.2bn.
Honda earnings preview
Honda is expected to report earnings a share of around $1.58 when it releases its third quarter 2021 earnings report on November 5, with sales estimated to come in at $36.117bn, according to Zacks Research.
Honda stock predictions: Key downside risks
Over the short-term, the ability of Honda to produce more vehicles is hampered by the industry’s ongoing struggle to secure sufficient semiconductors for manufacturing, which has forced it to idle production lines across the world and dampened output.
Honda closed its five North American factories for a week earlier this year amid the shortage, with domestic plants in Japan also shutting due to the supply constraints in April.
At the same time, while electrification is a long-term strategy, it also presents risks given the scale of capital expenditure involved, with the company predicting research and development costs to rise from ¥780bn this year to ¥840bn in 2022.
Similarly, the move to restructure global operations, which this year has seen the company close long-running plants in the UK and Turkey, is aimed at streamlining operations, but there is a risk that the incumbent corporate culture could prove resistant to the goal of centralising decision making.
Analysts at Zacks Investment Research argued in a recent note that while the strategic focus on electric and self-driving vehicles could reap dividends over the long-term, there are a number of hurdles to overcome.
Their Honda stock analysis has a target price of $31.00 over the next 6-12 months, with a ‘hold’ recommendation.
Towards an EV future
The Vision 2030 strategy of investing heavily in electric and self-driving vehicles may be one of the most important reasons for investors looking at Honda stock to buy or sell in the coming years.
Honda has been more tentative than some of its rivals in moving to electrification. The company released its first fully-electric car, the Honda E, as recently as early 2020.
Honda is ramping up its efforts, announcing earlier this month that it will launch a new electric vehicle brand in China next year that from 2030 will only sell battery electric, hydrogen fuel-cell or petrol-electric hybrid vehicles.
The new brand, e:N Series, a partnership with Chinese domestic manufacturers GAC and Dongfeng Motor, is set to produce 10 new models over the next five years and build EV-only factories the company hopes to be operational by 2024.
Honda has also struck a partnership with General Motors in North America to produce lower-cost models for that market, one of the company’s most important, with more than half of the parts shared in models.
Honda stock forecast
Of the 15 equity analysts that cover Honda Motor Company, nine recommend a ‘buy’ rating, with an average price target of $35.88, according to data from CNN Money.
Honda stock predictions vary widely from a low of $29.13 a share to a high of $44.83.
MorningStar’s sector strategist David Whiston said that while the company retains a solid financial base, it’s competing in an increasingly crowded market and risks remain.
“Honda's products and strong financial position should keep it on solid ground, but the competition is fierce and the U.S. market's move to light trucks, where Honda's lineup is not complete, may be permanent,” he said in a note.
“Ongoing risks include foreign-exchange volatility, a highly competitive US market, and rising steel prices.”
Note that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
FAQs
Is Honda a good stock to buy?
Of the 15 equity analysts that cover Honda Motor Company, nine recommend a ‘buy’ rating, with an average price target of $35.88, according to data from CNN Money.
Note that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.
Why has Honda stock been going down?
Over the short-term, the ability of Honda to produce more vehicles is hampered by the industry’s ongoing struggle to secure semiconductors for manufacturing, which has forced it to idle production lines across the world and dampened output.
Honda closed its five North American factories for a week earlier this year amid the shortage, with domestic plants in Japan also shuttering due to the supply constraints in April.
How to buy Honda stock
Honda Motor Company (HMC) is listed on the New York stock exchange and is available to buy through a stockbroker.
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