Honda Motor (HMC) Stock Falls After Restating 2014 Financial Results

NEW YORK (TheStreet) -- Honda Motor Co.  (HMC) shares are down 1.92% to $33.21 in early market trading on Friday after the Japanese automotive company said that it would restate its financial results for the previous fiscal year to account for the expanded recall of vehicles with faulty Takata Corp. (TKTDY) airbags.

The company attributed an additional $363 million in spending due to charges related to a U.S. recall of vehicles with the faulty Takata supplied airbags.

Honda said that the costs had to be booked for the fiscal year ended March 31 rather than the current year due to U.S. accounting rules, with the revised earnings figures to be disclosed by the end of this month.

The company also said that the revised results will affect neither its dividend payout for fiscal 2014 or the forecast for its current fiscal year.

Insight from TheStreet Research Team:

Real Money Pro's Paul Price recently wrote about Honda, here is what he had to say:

"Honda Motor Company (HMC), which also produces high-end brand Acura, make some of the best cars in the world. You would probably expect that their stocks had boomed right along with the worldwide surge in vehicle sales. A peek at their charts, however, tells a very different story. The auto business is among the most cyclical. Daimler went from earning $5.55 per share in 2007 to a $1.74 loss in 2009. Honda's recession occurred between 2007 and 2008. It avoided running a deficit, but EPS plunged from $3.30 to $0.77," Price said.

- Paul Price, 'Consider Selling Your Auto Stocks', 5/28/2015

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 a number of 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 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 lackluster performance in the stock itself."

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. Despite an increase in cash flow, HONDA MOTOR CO LTD's average is still marginally south of the industry average growth rate of 23.14%.
  • 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 ($2.73 versus $2.42).
  • HMC, with its decline in revenue, slightly underperformed the industry average of 7.3%. 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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