On Friday, UBS adjusted the firm's stance on Honda Motor Co Ltd (7267:JP) (NYSE: NYSE:HMC) stock, changing the rating from Sell to Neutral. The price target was also revised, moving from JPY1,400.00 to JPY1,300.00. The decision comes after considering the recent 30% drop in Honda's share price since its peak in March 2024 and the company's reduced guidance announced with its second-quarter results.
UBS noted that the potential negative impact of battery electric vehicles (BEVs) on Honda's business appears to have been already accounted for in the stock's valuation. The analyst pointed out that the current market capitalization of Honda, which stands at JPY6 trillion, suggests limited downside risk to the stock price. The upgrade to Neutral reflects this assessment.
The UBS analyst also mentioned adjustments to earnings per share (EPS) projections for Honda. For the fiscal year ending in March 2025, EPS estimates were reduced by approximately 10% to account for higher product-quality costs that have emerged in the first half of the year and greater losses from BEV operations. Furthermore, projections for the fiscal year ending in March 2026 and subsequent years were decreased by about 4-5%. This revision is based on expectations for increased incentives and expanding BEV losses.
In his analysis, UBS highlighted that the details of Honda's reported business integration have not been made clear and are not included in the current valuation. Additionally, he suggested that any collaboration between Honda, Nissan (OTC:NSANY), and Mitsubishi Motors (OTC:MMTOF) would need to offer clear benefits to Honda to be considered necessary or likely.
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