Toyota Stock May Be a Buy
After Falling 24% in 2007, Shares Lure Some Analysts
By JOHN MURPHY
January 7, 2008; Page C3
TOKYO -- Toyota Motor may well have had a landmark 2007, yet its shares slid 24% during the year. Now, some analysts say 2008 could be a good time to give the stock another look.
When full-year sales figures become available, they might show that Toyota unseated General Motors as the world's largest auto seller on an annual basis. Toyota led after six months, then GM retook the lead at the nine-month mark.
For Toyota, selling more than 9.3 million vehicles globally couldn't keep its stock from falling. Contributing to that drop were weak sales in the U.S. amid higher fuel prices, the subprime-lending crisis and a steep decline in housing sales. Another factor hitting Toyota's results was the strengthening of the yen against the dollar; a rising yen decreases the value of earnings repatriated from overseas markets when calculated in yen.
And for 2008, economic forecasts for North America -- where Toyota got more than 36% of its revenue in the fiscal year ended March 2007 -- remain gloomy.
Nonetheless, some analysts say Toyota's shares have fallen too far in recent months. They say the stock's fall hasn't taken into account the car maker's strong growth projections in the emerging markets of China, Russia and India as well as its record of cutting costs to offset the U.S. slowdown.
"We found that even when we assume a much weaker U.S. market with much worse vehicle pricing, Toyota looks cheap," Christopher Richter, an analyst with CLSA Asia-Pacific Markets in Tokyo, wrote in a Dec. 10 report. Mr. Richter rated Toyota a "buy" with a 12-month target price of 8,500 yen ($78.37), up from his previous target of 7,900 yen.
On Friday, Toyota shares finished 4.3% lower at 5,780 yen after hitting a 12-month low of 5,740 yen, amid a general selloff in Tokyo.
Much of the optimism stems from Toyota's rapid growth in emerging markets like China, where it was a latecomer compared with many Japanese rivals but is now catching up, analysts say.
"The emerging markets will be the engine for growth" in 2008, says Tatsuo Yoshida, an analyst with UBS Securities Japan in Tokyo. He also rates Toyota a buy, with a 12-month target of 8,900 yen.
At the company's year-end news conference in December, Toyota President Katsuaki Watanabe announced ambitious projections for 2008, forecasting a 5% boost in global sales to a record 9.85 million vehicles. In August, Mr. Watanabe said Toyota would sell 10.4 million vehicles world-wide in 2009.
"Natural-resource-rich countries such China, Brazil, Russia and the Middle East are expected to continue very solid market expansion," Mr. Watanabe said.
In Asia, excluding Japan, Toyota officials said the company expects to see a 20% rise in vehicle sales in 2008. In China alone, where Toyota makes its top-sellers Corolla sedan and new Yaris subcompact, sales are expected to jump 43% in 2008 to a record 700,000 vehicles. That would put it well ahead of Honda Motor, which has been the Japanese automotive leader in China and which plans to sell 490,000 vehicles during the same period. In Latin America, Toyota expects sales to rise 11% to 420,000 vehicles in 2008.
In Russia, Toyota opened a new factory in December and announced that it hopes to build a second one to supply the booming Russian car market and to export to other markets as it seeks to reach annual production of 200,000 to 300,000 cars.
By contrast, growth in the North American market will remain sluggish, up just 1% to 2.64 million vehicles, while in Europe the car maker aims for a 2% increase in sales.
Tsuyoshi Mochimaru, an analyst for Lehman Brothers in Tokyo, cautions that while Toyota's share price may look attractive at present, investors hoping for short-term gains should look elsewhere because of uncertainty in the U.S. market.
Suzuki Motor, which has been cushioned from U.S. market turmoil thanks to its strong inroads into emerging markets like India, might deliver quicker returns, he says.
Toyota faces production challenges. Mr. Mochimaru says he believes the company needs to employ more engineers and designers to help build plants and new models. In December, Toyota announced a recall of 15,600 of its new full-size, four-wheel-drive pick-up, the Tundra. Toyota said no accidents or injuries were linked to the recall, made because of problems with a propeller shaft connected to the rear axle.
Many analysts say they remain confident Toyota can keep adjusting to changing markets and delivering solid profit. In 2007, the company started a cost-cutting program that involves achieving savings by rethinking vehicle designs and how cars are made.
Toyota's last cost-cutting program, from 2000 to 2004, focused on reducing component costs. The company says it produced total savings of one trillion yen.
Long-range planning is one reason Mr. Yoshida of UBS remains upbeat on Toyota. "They aren't looking 10 kilometers down the road, they are looking 100 kilometers down the road," he says.
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