the ongoing Toyota story of Reassuring their Customers about Toyota’s Good Quality and Safety plus Value for Money when buying a Toyota!
Toyota Investors Defy Consumer Reports to Revive Market Value (ref:Bloomberg.com)
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By Greg Miles and Makiko Kitamura
April 16 (Bloomberg) — Some Toyota Motor Corp. investors say the automaker’s stock is a bargain and poised for gains after recalls involving its top-selling models and criticism of its newest sport-utility vehicle.
Holders including Harris Associates LP and Fortis Investments are betting the automaker’s sales and profit recover. The company is recalling more than 8 million vehicles worldwide and has been criticized by the U.S. Transportation Secretary. This week, Toyota’s redesigned Lexus GX SUV was called a “safety risk” by Consumer Reports magazine.
Since the world’s largest automaker lost $35 billion in stock value from Jan. 19 to Feb. 23, it recovered $15 billion of its market capitalization. Toyota’s American depositary receipts gained declined 27 cents, or 0.3 percent, to $80.06 yesterday in New York Stock Exchange composite trading.
“We think that Toyota has more upside than the average name in the portfolio,” said Robert Taylor, who manages two funds for Harris in Chicago and is director of international research. Taylor held 11.6 million Toyota shares as of December 31 and says he bought more in the first quarter. He estimates Toyota sells at a 50 percent discount in the market. “We think it’s substantially undervalued,” he said.
U.S. sales of Toyota’s two brands rose 41 percent in March when no-interest loans and other offers increased the average value of discounts to $2,310, up 46 percent from a year earlier, according to industry researcher Autodata Corp.
A Toyota spokeswoman, Ririko Takeuchi, in Tokyo declined to comment on the company’s stock value.
Relative Performance
Toyota has slipped 4.4 percent so far this year, while Honda Motor Co. rose 3.9 percent, Bayerische Motoren Werke AG gained 7.5 percent and Ford increased 26 percent.
Toyota is still one of the most highly valued automakers on a price-to-sales ratio at 0.7, trailing only Honda’s 0.71 among top-selling public automakers. Ford’s ratio is 0.34; BMW’s is 0.43.
Several analysts are optimistic about Toyota. Of 23 forecasters surveyed by Bloomberg, 10 have a buy rating, 10 a hold and three recommend selling the stock.
“There is a chance in a year this is forgotten,” said Wendy Trevisani, fund manager for Santa Fe, New Mexico-based Thornburg Investment Management Inc. “The weakness of the yen is a further catalyst for upwards earnings revisions.”
Thornburg, which owned 16.3 million shares of Toyota on December 31, still has “substantial” holdings after trimming its stake in the first quarter, Trevisani said.
The yen has weakened 10 percent against the dollar to 93.12 since hitting a 14-year high of 84.83 on Nov. 27.
Biggest Recall
Toyota announced the biggest recall in company history in September, covering 3.8 million vehicles, including some Lexus models and the top-selling car in the U.S., the Camry sedan. The recall over floor mats that could interfere with the gas pedal was expanded in November, and in January, the automaker issued another recall for potentially sticky gas pedals.
By Feb. 4 the U.S. said it would investigate Toyota’s Prius, the world’s top-selling hybrid, and the automaker said it was considering a recall of the model in Japan, where it was the best-selling vehicle of 2009.
Jim Lentz, the company’s U.S. sales chief, told a Congressional committee on Feb. 23 that Toyota may not know the cause of unintended acceleration in as many as 70 percent of reported incidents. President Akio Toyoda testified the next day.
Since Feb. 23, the automaker’s New York-traded shares have rebounded 12 percent.
“We don’t feel the recent lift in the stock is overdone,” Trevisani said. “The operational leverage is high and if the company can appropriately address the negative headlines the stock should continue to make progress.”
Reputation Risk
One risk is that Toyota’s reputation with car buyers may be permanently damaged, hurting sales volume or profit per vehicle.
More negative attention came this week when Consumer Reports, the influential non-profit magazine, warned drivers that the 2010 Lexus GX 460 SUV could roll over if a driver released the gas pedal during a sharp turn. Toyota halted production and asked dealers in North America, Russia and the Middle East to stop selling the model.
“Consumer Reports is a large and noteworthy publication with legions of fans, and therefore we can expect the ‘headline effect’ will take another round’s toll, much to Toyota’s chagrin,” said James Bell, an executive market analyst for Kelley Blue Book. The magazine’s report “may ‘scratch the scab’ before healing was complete.”
Legal Costs
Toyota faces costs from at least 177 consumer and shareholder lawsuits seeking class-action status and 57 individual suits claiming personal injuries or deaths caused by sudden acceleration.
Those cases could get a boost, according to Professor Carl Tobias of the University of Richmond School of Law, now that the National Highway Traffic Safety Administration has proposed a $16.4 million civil penalty on Toyota for hiding safety problems from consumers and may issue a second fine.
The risk of more proposed fines, congressional hearings and legal action by the U.S. government has caused Huntington Asset Advisors to avoid Toyota shares, said Peter Sorrentino, senior portfolio manager at the firm, based in Cincinnati.
“We don’t know how long political figures will drag this out,” said Sorrentino, who helps manage $12.8 billion. “It’s death by a thousand cuts.”
He said he would buy shares once it’s clear the Justice Department and NHTSA plan no further action against Toyota. Sorrentino also said that Toyota’s outlook is bright once the company gets past its current problems.
‘Come Back Stronger’
“They’re going to come back stronger as a result of this,” he said. “The stock has considerably more upside going forward.”
Toyota has the resources to withstand the recall and lawsuit costs, Taylor said. The company has about $42 billion in net cash and securities on its balance sheet, and Taylor said it can generate as much as $10 billion in cash each year.
Investors like Taylor also are betting that the loyalty of Toyota customers will more than offset the damage inflicted by the recalls and how the company handled them.
Surveys of dealers and customers by auto-research Web site Edmunds.com show consumers believe the company still produces quality vehicles, said Jessica Caldwell, a director of industry analysis for the Santa Monica, California-based company.
‘Tune It Out’
“People tune it out,” said Caldwell. “Consumers are already trying to forget about this. The consumer’s mindset is relatively short term.”
Sales of the redesigned SUV with a sticker price that starts at $51,970 had more than tripled in March, accounting for 8.8 percent of Lexus brand sales. The most expensive Lexus models earn at least 10 times the operating profit per vehicle of a Toyota Corolla small car, according to Koji Endo, managing director of Tokyo-based Advanced Research Japan.
Gentoku Kiyokawa, a Fortis Investments fund manager in Tokyo who bought Toyota shares in February, said in an e-mail that he’s not worried about the Lexus GX 460 rating. He predicts it will have “no impact” on the company’s value and the stock will be a “good performer.” Fortis owned 607,000 Toyota shares as of February 28.
To contact the reporter on this story: Greg Miles in New York at gmiles1@bloomberg.net; Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net
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