Updated with share price
) -- If the worst news about
is out, then Feb. 4 was a big day in the life of a stock.
On that Thursday, Toyota's American depositary shares reached $71, their lowest price since April 2009. Since Feb. 4, the shares have rebounded, closing Tuesday at $74.60. Shortly before 10 a.m. EST Wednesday, shares of Toyota were trading at $75.86, up $1.26, or 1.69%.
Toyota is the world's biggest automaker with a strong balance sheet, a reputation for quality, loyal buyers and so far, it must be said, only a handful of incidents related to its sticky accelerator pedals. On the negative side, its reputation for quality has most likely diminished, the residual value of its vehicles is declining, and it is a company in the midst of a crisis, with some observers questioning the adequacy of its response.
Standard & Poor's auto analyst Efraim Levy downgraded Toyota shares to hold from buy on Feb. 3. He said he acted in response to impending congressional hearings; speculation about a Prius recall, which began Tuesday, and the potential for lawsuits. "That means a steady diet of negative news," he said, in an interview.
"My theory now is that they have balance sheet strength and a reservoir of good will to ride this through," Levy said. "If they fix things now, patch things up with customers, and make nice with the consumer, things will be OK. The risk is that if they say the situation is fixed, and then there are additional related issues, they will take a hit to their reputation that will be harder to fix."
In general, the stock market seems to feel that Toyota is likely to weather the storm. A key point is that the economy and auto sales are rebounding after a recession. "The likelihood of earnings momentum accelerating (during the coming six months) has increased due to such factors as recovering auto demand in Japan and the U.S. and demand growth in emerging market economies," wrote Citigroup analyst Noriyuki Matsushima, in a recent report. "Toyota's strengths include its edge in hybrid cars and the structural reforms it is implementing to lower (costs) at global production plants in Europe, North America, and Asia."
Matsushima has a buy/medium risk rating on the stock, with a target price of $99.77. "Not only do we consider Toyota highly cost-competitive in established areas, we believe it also has a strong lead over competitors in commercializing new technologies," he wrote. Responding to the recession, the company reduced costs and inventory, then began to boost production in November.
Matsushima added that Toyota President Akio Toyoda's appearance at a press conference on Friday represented "the company's first step toward restoring confidence." He said. "However, given the heavy hit to the company's legacy, the restoration of consumer trust will take time."
Similarly, Morgan Stanley analyst Noriaki Hirakata assigns an overweight rating and welcomed Toyoda's press conference. "It is positive for brand revival that the firm has begun communicating with customers and has made a commitment to further press conferences," he wrote. Going forward, he said, production rates will be adjusted to match the sales rate. He said concerns about surplus automotive capacity in North America are receding, but noted that a strengthening yen and prolonged stagnation in European and U.S. markets are risk factors.
-- Written by Ted Reed in Charlotte, N.C.