Morgan Stanley's analysts recently increased their price targets on Toyota and Honda, with Honda specifically highlighted as their top choice among Japanese automakers due to improved profitability prospects and sustained shareholder returns. This strategic move is based on the idea that Honda's profitability is expected to shine brighter in the coming days with a broader range of hybrid electric vehicles (HEV) and a steady improvement in the supply chain of the sector.
The analysts at Morgan Stanley also emphasized the importance of shareholder returns as a key factor in elevating the stock price of Honda above book value. The 300 billion yen ($1.91) share buyback further solidifies their confidence in Honda as their top pick for the industry. Despite an expected rise in overall costs for Honda, particularly in research and development spending related to in-house battery production and software, the analysts remain optimistic about the stock's outlook.
While Morgan Stanley also increased its price target on Toyota, the rating for Japan's largest automaker was maintained at Equal Weight. The forecast for Toyota suggests stagnant growth in output and sales as the company focuses on building up reserves and strengthening its position in the auto industry. Toyota faced challenges in the past, including Daihatsu's safety scandal and production suspensions due to natural disasters, impacting sales in the previous quarter and creating ongoing production obstacles in the new fiscal year.
Competitive Edge in HEVs
Despite the challenges faced by Toyota, particularly in the current fiscal year, the analysts at Morgan Stanley noted that the automaker possesses an “overwhelming competitive edge” in hybrid electric vehicles (HEVs). This advantage could potentially drive future growth for Toyota and enhance its position in the market, albeit with some hurdles to overcome.
Morgan Stanley's decision to revise price targets for Toyota and Honda reflects a strategic focus on profitability prospects, sustained shareholder returns, and future growth potential in the evolving auto industry landscape. While Honda emerges as the top pick among Japanese automakers, Toyota's competitive edge in HEVs presents an opportunity for growth, despite the challenges it faces in the short term. Investors will be closely monitoring these developments to gauge the long-term performance of both automakers in the global market.