Despite the economic and geopolitical headwinds, the revenue for the automotive industry is expected to rise in the upcoming quarter. Even with continued chip shortage, automakers are planning to expand their markets and improve their profitability by optimizing supply-chain management and strengthening their electric vehicle future production lineups.
Furthermore, high fuel costs and government initiatives encourage consumers to switch to electric vehicles, as evident from the more than 66% year-over-year increase in EV sales in the United States in the second quarter of 2022. Even if the traditional auto market struggles, this ought to propel the overall performance of auto manufacturers. The U.S. automotive market is projected to reach $37.8 million by 2029, growing at a CAGR of 13.2%.
Given this backdrop, we think it could be wise to invest in quality auto stocks Volkswagen AG (VWAGY), Honda Motor Co., Ltd. (HMC), and Subaru Corporation (FUJHY).
Volkswagen AG (VWAGY)
VWAGY is a popular Germany-based automobile manufacturing company. Volkswagen, Audi, SEAT, SKODA, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania, and MAN are the popular brands in its portfolio. It operates through four segments — Passenger cars; Commercial vehicles; Power Engineering, and Financial Services. The company primarily operates in Europe, North America, South America, and Asia-Pacific.
The company is aiming to raise capital with the IPO of its world-famous car brand Porsche with a target valuation of up to 75 billion Euros ($74.84 billion).
Last month, Volkswagen AG and Mercedes-Benz Group AG signed agreements with Canada to secure access to raw materials such as nickel, cobalt, and lithium for battery production. This agreement will reduce supply chain obstacles, ensure smooth operations, and avoid difficulties associated with tariff and tax regulations oversupply in the USA region.
VWAGY’s sales revenue increased 3.3% year-over-year to €69.54 billion ($69.54 billion) for the second quarter ended June 2022. Its earnings after tax improved 25.8% year-over-year to €3.91 billion ($3.91 billion) over the period. The company’s EPS increased 27.1% from its year-ago value to €20.51.
The consensus revenue estimate of $69.51 billion for the current quarter ending September 2022 represents a year-over-year increase of 4.5%. The stock has gained 7.9% over the past three months.
VWAGY’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VWAGY is also rated a B in Value, Stability, and Sentiment. Within the D-rated Auto-Vehicle Manufacturers industry, it is ranked #2 of 65 stocks. To see additional POWR Ratings for VWAGY, click here.
Honda Motor Co., Ltd. (HMC)
HMC designs, manufactures, and sells motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates in four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.
Last month, Honda Motor and LG Energy Solution announced plans to invest $4.4 billion in developing a new battery production plant for electric vehicles in the United States. According to Honda and LG Energy, their plant will begin mass production of advanced lithium-ion battery cells by the end of 2025.
HMC’s sales revenue came in at ¥3.83 trillion ($26.73 billion) for the first quarter ended June 30, 2022, up 6.9% year-over-year. Moreover, the company’s motorcycle sales came in at 4.25 million units, up 9.6% year-over-year.
Analysts expect HMC’s revenue to rise 343% year-over-year to $118.32 billion in fiscal 2023. In addition, its EPS is projected to increase 18.8% from the prior-year quarter to $3.26 in fiscal 2023. HMC has gained 2.01% over the past three months.
It is no surprise that HMC has an overall B rating, which translates to a Buy in our proprietary rating system. It has an A grade for Value and a B for Quality and Stability. In the same industry, it is ranked #8 of 65 stocks.
In total, we rate HMC on eight different levels. Beyond what we’ve stated above, we have also given HMC grades for Growth, Momentum, and Sentiment. Get all HMC ratings here.
Subaru Corporation (FUJHY)
FUJHY is a global manufacturer and distributor of automobiles and aerospace products. It operates through three divisions: Automotive Business Unit; Aerospace Company; and Other Businesses. It also provides vehicle shipping, land freight, and warehousing; vehicle leasing and rental; vehicle credit and financing; aircraft inspection, service, and maintenance; and IT system development and operation services.
For the fiscal first quarter ended June 30, 2022, FUJHY’s revenue increased 31.3% year-over-year to ¥834.1 billion ($5.82 billion). The company’s operating profit increased 25.2% year-over. Despite continued production constraints due to the shortage of semiconductors, global production increased 11.7% to 205,000 units.
FUJHY’s revenue is expected to grow 124.8% year-over-year to $26.25 billion for fiscal 2023. Its EPS is estimated to increase 193.9% to $1.05 in the same year. Over the past six months, FUJHY’s stock has gained 13%.
FUJHY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. FUJHY has a B grade for Growth, Value, and Stability. In the Auto-Vehicle Manufacturers industry, it is ranked #3. Click here to see the additional POWR Ratings for FUJHY.
VWAGY shares were trading at $20.41 per share on Tuesday afternoon, down $0.22 (-1.07%). Year-to-date, VWAGY has declined -28.24%, versus a -18.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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