Toyota Surge Hurts Every Other Automaker: Analyst

DETROIT ( TheStreet) -- Toyota's ( TM) 87% U.S. sales gain in May is just the start for the automaker, which has new products galore and is poised for a strong performance over the next several years.

Toyota's comeback means problems for every other automaker in the U.S., said Polk analyst Tom Libby. "Toyota had a huge May and they have a whole bunch of new products coming," Libby said.

The gains followed two years of problems due first to quality issues and then to inventory issues.

Toyota is likely to take back the lead from Ford ( F) as the No. 2 U.S. automaker, he said, and Hyundai's gains may stall as well. It is worth noting that "Toyota's gain in May was equal to the entire U.S. volume of the Hyundai make in the same month," Libby wrote, in a recent blog.

During May, Toyota's market share rose to 15.2%, up a remarkable five points from 10.2% in the same month a year earlier. Honda ( HMC) had a 1.5 point gain and Chrysler had a gain of 0.3 points. The remaining top four automakers all showed declines, with GM ( F) down 2.4 points and Ford down 1.8 points.

The May surge meant that Toyota's full-year sales for the first five months are up 23.7%, behind only Chrysler among the top seven. Camry was the No. 2 U.S. vehicle after a 110% sales gain, while Corolla was fifth with an 87.5% gain. The trends will continue even if the gain, partially due to unusually high fleet sales, diminishes, Libby said. Not only are Ford and GM ( GM) threatened, but Hyundai and Kia are also vulnerable after continuing gains over the past few years, he said.

Hyundai and Kia "have brought a steady stream of competitive, attractive products to the market, while Toyota has been down for two years," Libby said. The two have racked up big gains selling mid-sized cars, a market where Toyota has long had a strong presence.

Unfortunately, Toyota's strong sales gains don't necessarily translate into huge gains for shareholders. S&P Capital IQ analyst Efraim Levy has a hold on Toyota shares, which are already up about 14% for the year after closing Monday up 35 cents to $76.85. Levy has a target price of $86 and wrote in a recent note that "sales and profits should be restrained by the strong Japanese yen." The target price reflects a multiple of 14 times Levy's fiscal year 2013 earnings estimate of $6.14 a share.

Toyota shares trade in the U.S. as American depository shares. The yen's strength is a negative here, although Levy wrote that "translation effects for ADS holders will somewhat limit (its) net negative impact."

On the plus side, "We expect higher industry volume, full production capacity and new vehicle launches to help sales rebound nearly 19% in fiscal year 2013," Levy wrote. "Despite industry challenges in Europe and slowing economic growth in some regions, with the Japanese and Thailand crises now behind (Toyota), we expect its valuation will benefit from what see as the company's favorable long-term growth prospects and strong balance sheet."

Libby noted that Lexus has also been gathering strength in the luxury segment. "Lexus's core strength remains the midsize premium crossover RX Series; this model alone accounted for close to half of all Lexus deliveries in May," he wrote. "RX sales were up 82% from a year ago, and the RX by itself out-distanced all three of BMW's crossovers, the X3, X5 and X6, by 53%; the RX also out-sold the redesigned Mercedes-Benz ML-Class by more than 200%. With its huge owner body, frequent redesigns and competitive pricing, the RX remains the undisputed leader in the premium crossover space."

As for new products, the new Camry and Lexus GS as well as the Prius V and C are already showing gains.

"By the end of the 2013, we will see redesigned versions of the Toyota RAV4, Tacoma, Highlander, Avalon, Corolla and Sequoia as well as the Lexus ES and LS and Scion xb and xD," Libby wrote, adding: "It might be easier to just list the models which are not being re-designed."

Polk projected that Toyota and Lexus will account for 12.9% and 1.6%, respectively, of the U.S. new vehicle market in 2012, increasing to 13.8% and 2.0% in 2015, when "Toyota will be the most popular make in the country and Lexus number three in the premium market."

-- Written by Ted Reed in Charlotte, N.C.

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