Will Honda (HMC) Stock be Affected by Massive Air Bag Recall?

NEW YORK (TheStreet) -- Honda Motor (HMC) said on Thursday that it is planning to recall 5 million cars in order to replace potentially fatal air bags made by Japan's Takata Corp. and the recall could impact the automotive maker's sales in Japan, Reuters reports.

"There may be some impact [on Japan sales] but we want to make sure we take the right steps," senior Managing Officer Sho Minekawa told reporters at the launch of the company's new shuttle hybrid model.

The issue with the Takata airbags is that some inflators were not properly sealed, which could allow moisture to enter the propelling casing, causing the airbag to explode with excessive force, Reuters said.

Honda's recall is covering 14 models produced between 2002 and 2008. Earlier this week Toyota Motor (TM) and Nissan Motor (NSANY) issued recalls of close to 6.5 million vehicles relating to the same airbag problem.

Honda is also recalling 11,381 vehicles in India in order to replace the airbags, Reuters said.

Shares of Honda Motor closed at $35.08 on Thursday afternoon.

Separately, 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 some important positives, 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 good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

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

  • Net operating cash flow has increased to $4,169.55 million or 13.75% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -23.98%.
  • HONDA MOTOR CO LTD has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, HONDA MOTOR CO LTD reported lower earnings of $2.42 versus $3.10 in the prior year. This year, the market expects an improvement in earnings ($3.07 versus $2.42).
  • HMC, with its decline in revenue, slightly underperformed the industry average of 6.6%. Since the same quarter one year prior, revenues fell by 12.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Even though the current debt-to-equity ratio is 1.01, it is still below the industry average, suggesting that this level of debt is acceptable within the Automobiles industry. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.82 is weak.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Automobiles industry and the overall market on the basis of return on equity, HONDA MOTOR CO LTD 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: HMC Ratings Report

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