How Will Toyota (TM) Stock React to Possible Acceleration Issue?

NEW YORK (TheStreet) -- Toyota Motor Corp. (TM) is being probed by the National Highway Traffic Safety Administration regarding a car owner's allegations that older Toyota Corollas can accelerate unexpectedly at low speeds and cause crashes, reviving a problem that appeared to be in the automaker's past, the Associated Press reports.

The inquiry by the NHTSA covers about 1.69 million Corolla compact cars from the 2006 to 2010 model years. The agency said in documents posted yesterday on its website that the inquiry will determine whether a formal investigation is needed.

At least 141 complaints have been filed with NHTSA about unintended acceleration in Corollas, reminiscent of 2009 and 2010, when Toyota and its Lexus luxury brand vehicles were plagued by complaints of unwanted acceleration as well as investigations and recalls, the AP said.

 
Shares of Toyota closed at $117.52 yesterday.
 
TheStreet Ratings team rates TOYOTA MOTOR CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:
 

"We rate TOYOTA MOTOR CORP (TM) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income, attractive valuation levels, growth in earnings per share and notable return on equity. 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:

  • The revenue growth came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues slightly increased by 0.1%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Automobiles industry average. The net income increased by 2.4% when compared to the same quarter one year prior, going from $5,667.00 million to $5,803.00 million.
  • TOYOTA MOTOR CORP's earnings per share improvement from the most recent quarter was slightly positive. 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 $11.17 versus $6.46 in the prior year. This year, the market expects an improvement in earnings ($11.76 versus $11.17).
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Automobiles industry and the overall market on the basis of return on equity, TOYOTA MOTOR CORP has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • You can view the full analysis from the report here: TM Ratings Report
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