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TheStreet Open House

Will Toyota (TM) Settlement Help its Shares Today?

NEW YORK (TheStreet) -- Multiple sources are reporting that the Department of Justice has reached a billion dollar settlement with Toyota  (TM) over its handling of customer complaints about unintended acceleration that  eventually led the auto maker to recall over 8.5 million vehicles in 2010.

The settlement comes after a four-year criminal probe into the company. According to sources, the deal would allow the company to forego further prosecution in the case. The acceleration problem may have resulted in over 34 deaths over a period between 2000 and 2009.The DOJ has not announced the settlement yet but is expected to sometime Wednesday. 

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Last year Toyota reached a $1.1 billion settlement in the class action lawsuit brought against it by owners of the faulty vehicles. The company had also paid $25.5 million to settle shareholder claims that the company hurt the value of the stock by not acting sooner to address the vehicle acceleration problem.

This news comes in the midst of a massive recall by auto rival GM (GM), which recently recalled 1.6 million vehicles due to an ignition problem. The GM recall is currently under investigation.

TheStreet Ratings team rates TOYOTA MOTOR CORP as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

"We rate TOYOTA MOTOR CORP (TM) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 3.9%. Since the same quarter one year prior, revenues rose by 14.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • TOYOTA MOTOR CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, TOYOTA MOTOR CORP increased its bottom line by earning $6.46 versus $2.19 in the prior year. This year, the market expects an improvement in earnings ($12.15 versus $6.46).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Automobiles industry. The net income increased by 870.8% when compared to the same quarter one year prior, rising from $445.00 million to $4,320.00 million.
  • Net operating cash flow has increased to $5,897.00 million or 38.81% when compared to the same quarter last year. In addition, TOYOTA MOTOR CORP has also modestly surpassed the industry average cash flow growth rate of 29.69%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • You can view the full analysis from the report here: TM Ratings Report
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