Japan’s second-largest automaker, Honda Motor stock (NYSE: HMC), has predominantly fluctuated sideways this year, yielding approximately 2% since the beginning of January. Honda’s recent outcomes have been somewhat underwhelming in the latest quarters. For Q4 FY’25 (which concluded on March 31), the organization’s revenues fell short of projections, totaling around $35.1 billion, a decline from the previous year’s figure of $36.5 billion, while profits also did not meet expectations. While Honda’s motorcycle division has experienced robust expansion driven by demand from Asian markets, its automotive segment witnessed a revenue decrease amidst challenges in China. In North America, the firm sold 1.65 million vehicles in FY’25, a slight increase from the earlier year, bolstered by a stronger adoption of hybrid vehicles.
Nonetheless, the 25% tariff on foreign automotive imports imposed by the Trump Administration is expected to affect Honda’s U.S. operations. Honda is attempting to navigate around these tariffs, with reports suggesting that it might produce its next-generation Civic hybrid, one of its most favored models, in the U.S., instead of Mexico. Honda has signaled that the effects of the tariffs imposed by the U.S. would significantly influence its business, with the situation also remaining uncertain due to frequent policy changes. Honda has projected net profit forecasts for 2026 that are anticipated to be 70.1% lower than FY’25, while revenues are expected to decline by 6.4% year-over-year.
Is Honda Stock Still Attractive?
Investors may also have concerns regarding Honda’s long-term outlook. Honda has reaffirmed its commitment to its EV strategy, increasing investments in EVs during a period of declining demand, which is likely to affect profitability in the short run. It also remains to be determined whether Honda can stay competitive in markets like China, where domestic manufacturers are witnessing a surge in interest for their affordably priced yet highly equipped electrified vehicles. Furthermore, vehicles manufactured in China are gaining acceptance globally, with China set to become the world’s largest car exporter, surpassing Japan. Honda’s sales volumes in Asia decreased by nearly 28% year-over-year in FY’25. In addition, a potential strengthening of the yen could also negatively impact Honda in the medium term. The yen has appreciated almost 8% against the dollar in the past 12 months.
A stronger yen diminishes the competitiveness of Honda’s exports from Japan and reduces its international earnings when converted back to yen. That said, Honda’s stock valuation appears reasonable, trading at approximately 8x FY’25 earnings. The company’s low valuation, ongoing share repurchase programs, and potential growth in the hybrid sector could help support the stock during the current volatility. We value Honda stock at around $32 per share, slightly above the present market price. See our analysis of Honda Valuation for further details on what’s influencing our valuation for Honda. Also, check our analysis of Honda Revenue for additional information on Honda’s primary revenue sources.
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