Honda Motor Company vs. Ford

Honda Motor Co., Ltd. (HMC) and Ford Motor Company (F) is a leading global car manufacturer. Based in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, cars, and electrical products. The company also sells spare parts and provides after-sales service directly through retail dealers, independent distributors and licensees.

F designs, manufactures, markets and services a wide range of trucks, cars, sports vehicles, electric vehicles, Lincoln luxury vehicles, and related parts and accessories. It provides retail installment sales contracts for new and used vehicles and direct finance leases for new vehicles to retail and commercial customers.

Ongoing problems such as shortage of semiconductor chips, shortage of raw materials, high inflation, and interest rate hike has significantly affected the car manufacturing industry in recent times. This forced many companies to cut production significantly.

However, HMC and F’s shift in focus on the fast-growing electric vehicle (EV) market, which benefits from government support, will drive their long-term growth and help them stay afloat in the near term.

Investor interest in this space is evident from the KraneShares Electric Vehicle and Future Mobility Index ETF (KARS) 3.2% gain over the past week.

F is the winner with a 2.9% gain over the past week versus HMC’s 2% return. But which of these stocks is better to choose now? Let’s find out.

Newest update

On June 21, 2022, HMC’s China subsidiary, Honda Motor (China) Investment Co., Ltd., announced that the production and sales of the JV, GAC Honda Automobile Co., Ltd. (GAC Honda), started construction of a new EV factory. .

With an initial investment of RMB3.49 billion ($521.81 million) and the adoption of advanced production technologies, this highly efficient, intelligent and low-carbon EV plant will have an annual production capacity of 120,000 units from 2024 onwards.

On June 22, 2022, F’s Europe business selected its plant in Valencia, Spain, as the preferred location for assembling vehicles based on the next-generation EV architecture. Pending product approval, the plant could produce groundbreaking electric and connected vehicles from the end of the decade.

F is also moving forward with a $2 billion conversion from its Cologne, Germany operation to producing electric passenger vehicles starting in 2023. By 2026, Ford in Europe plans to sell 600,000 electric vehicles annually. This plan will help F expand its reach in the European EV market.

Latest Financial Results

For the fourth quarter of the 2022 fiscal year ending March 31, 2022, HMC’s sales revenue increased 10.5% year-on-year to 3.88 trillion ($28.72 billion). The company’s operating profit stood at 199.59 billion ($1.48 billion), representing a 6.4% decline from the year-earlier period.

Its net profit stood at 144.50 billion ($5.87 billion), down 35.4% from the year-ago period. HMC’s EPS stood at 73.02, representing a 40.9% year-over-year decline. As of March 31, 2022, the company had 3.68 trillion ($27.24 billion) in cash and cash equivalents.

For the first quarter of the 2022 fiscal year ending March 31, 2022, F’s total revenue fell 4.8% year-on-year to $34.48 billion. The company’s operating income totaled $1.34 billion for the quarter, an increase of 45.5% from the year-earlier period.

F’s adjusted earnings totaled $1.56 billion, down 45.5% from the year-ago period. Adjusted EPS stood at $0.38, representing a 45.8% year-over-year decline. As of March 31, 2022, the company had $20.54 billion in cash and cash equivalents.

Past and Expected Financial Performance

Over the past three years, HMC’s free cash flow and total assets have increased at a CAGR of 30.2% and 5.5%, respectively.

HMC’s EPS is expected to increase by 2.6% year-on-year in fiscal year 2023, ending March 31, 2023, and 47.6% in fiscal year 2024. Its revenue is expected to grow 356.9% in fiscal years 2023 and 7 .6% in the 2024 fiscal year.

Over the past three years, F’s free cash flow and total assets have decreased by 1.9% and 1.3% CAGR, respectively.

Analysts expect EPS F to increase 21.4% year-on-year in fiscal year 2022, ending December 31, 2022, and 11.4% in fiscal year 2023. Revenue is expected to grow 14.9% year-on-year in fiscal year 2022 and 10.1% in fiscal year 2023.

Evaluation

In terms of forward EV/EBITDA, F is currently trading at 9.83x, 28.7% higher than HMC’s 7.64x. In terms of forward EV/Sales, F 1.06x compared to HMC 0.62x.

Profitability

F-12-month trailing earnings are 1.1 times that of HMC. However, HMC is more profitable, with 20.5% gross profit margin compared to F 11.4%.

Furthermore, HMC’s leveraged free cash flow margin is 8.4% compared to F 3%.

POWRA Rating

While HMC has an overall B rating, which means Buy in our possession POWRA Rating system, F has an overall C value, equivalent to Neutral. The POWR rating is calculated taking into account 118 different factors, each weighted to an optimal level.

HMC has an A for Value, which aligns with its lower rating ratio than the industry. HMC’s 0.62x forward EV/Sales is 40.9% lower than the industry average of 1.06x. The B grade for the F grade reflects his relatively lower rating. EV/Sales 1.06x ahead is 0.8% lower than the industry average of 1.06x.

HMC has a B rating for Stability, which reflects its lower volatility compared to the wider market. HMC has 0.96 beta. The D value for Stability F aligns with higher volatility. F has 1.15 beta.

From 65 shares in Car & Vehicle Manufacturer industry, HMC is ranked #4, while F is ranked #28.

Beyond what we have stated above, our POWR Rating system has been rated F and HMC for Growth, Quality, Stability and Momentum. Get all HMC ratings here. Also, Click here to view additional POWR Ratings for F.

Winner

The increased focus on the fast-growing EV market will help automakers HMC and F grow in the long term. However, the relatively lower valuation and higher profitability make HMC a better buy here.

Our research shows that the chances of success increase when a person invests in stocks with a Buy or Buy Strong Overall POWR Rating. Click here to access stock of top-rated Car & Vehicle Manufacturers.


HMC shares were trading at $24.96 per share on Friday afternoon, up $0.12 (+0.48%). This year, HMC has fallen -11.02%, versus a -17.93% gain in the benchmark S&P 500 index over the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in discovering market inefficiencies. He is passionate about educating investors, so they can find success in the stock market. Again…

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