Why Honda (HMC) Is Down Today

NEW YORK (TheStreet) -- Honda (HMC) was falling 2.9% to $36.42 Monday after the company announced sales decreased 2.1% year over year in January.

The automaker sold just 91,631 vehicles in the month of January, a 2.1% decrease from the same month in 2013. Strong sales in the company's Acura brand of luxury vehicles helped keep losses lower than they could have been.

In a statement Honda said, "Record cold weather in several of Honda's stronghold markets in Eastern and Midwestern parts of the country helped cool sales across the board in the first month of the year."

Sales of the Honda Accord, typically the company's best-seller, were down 13.9% in the month. The CR-V SUV, however, was up 2.4%. The new flagship sedan for the Acura brand, the RLX, also performed well. The company sold 420 RLX units in January.

TheStreet Ratings team rates HONDA MOTOR CO LTD as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate HONDA MOTOR CO LTD (HMC) a BUY. This is driven by multiple 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 growth in earnings per share, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in net income. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

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

  • HONDA MOTOR CO LTD has improved earnings per share by 13.3% 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 year. We feel that this trend should continue. During the past fiscal year, HONDA MOTOR CO LTD increased its bottom line by earning $2.17 versus $1.41 in the prior year. This year, the market expects an improvement in earnings ($3.29 versus $2.17).
  • Net operating cash flow has significantly increased by 113.34% to $3,765.72 million when compared to the same quarter last year. In addition, HONDA MOTOR CO LTD has also vastly surpassed the industry average cash flow growth rate of 30.53%.
  • The debt-to-equity ratio is somewhat low, currently at 0.98, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.83 is somewhat weak and could be cause for future problems.
  • Despite the weak revenue results, HMC has outperformed against the industry average of 14.1%. Since the same quarter one year prior, revenues slightly dropped by 0.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • The company, on the basis of net income growth from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Automobiles industry average. The net income increased by 12.9% when compared to the same quarter one year prior, going from $1,095.39 million to $1,236.18 million.

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