How Will Honda Motor (HMC) Stock React To Expected New Massive Recall?

NEW YORK (TheStreet) -- Shares of Honda Motor Co., Inc.  (HMC) are lower in after-hours trading after it was reported that the automaker is expected to recall over 1 million more vehicles with potentially defective air bags, expanding a massive, multi-company air bag recall, sources told Reuters late today.

The recall involves faulty air bag inflators supplied by Takata Corp and would follow a similar move this week by Toyota Motor Corp. (TM).

The Honda recall should be announced by the end of June, sources added.

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

"We rate HONDA MOTOR CO LTD (HMC) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself and poor profit margins."

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

  • The revenue growth came in higher than the industry average of 22.7%. Since the same quarter one year prior, revenues rose by 41.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • HONDA MOTOR CO LTD 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. This trend suggests that the performance of the business is improving. During the past fiscal year, HONDA MOTOR CO LTD increased its bottom line by earning $3.10 versus $2.17 in the prior year. This year, the market expects an improvement in earnings ($3.52 versus $3.10).
  • Net operating cash flow has increased to $3,665.46 million or 41.38% when compared to the same quarter last year. Despite an increase in cash flow, HONDA MOTOR CO LTD's average is still marginally south of the industry average growth rate of 42.70%.
  • The gross profit margin for HONDA MOTOR CO LTD is currently lower than what is desirable, coming in at 33.30%. Regardless of HMC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, HMC's net profit margin of 5.45% compares favorably to the industry average.
  • In its most recent trading session, HMC has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, we do not see anything in this company's numbers that would change the one-year trend. It was down over the last twelve months; and it could be down again in the next twelve. Naturally, a bull or bear market could sway the movement of this stock.
  • You can view the full analysis from the report here: HMC Ratings Report

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