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A Look at Toyota’s Valuation Multiples after 2Q18 Results

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Toyota’s EV-to-EBITDA multiple

As of November 10, 2017, Toyota’s (TM) forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 9.4x. That was much higher than the multiples for other mainstream automakers (XLY). Below are the EV-to-EBITDA multiples for other automakers:

  • General Motors (GM): 6.2x
  • Fiat Chrysler (FCAU): 2.1x
  • Ford Motor (F): 13.5x

These valuation multiples are calculated based on estimated EBITDA for these companies for the next 12 months.

Forward PE ratio higher than peers 

Toyota’s forward PE (price-to-earnings) multiple is 11.2x, which is much higher than General Motors’ ratio at 7.2x and Ford’s at 7.4x. That’s mainly because Toyota has a stronger global product portfolio in the premium and heavyweight vehicles category than its competitors. Premium and heavyweight vehicles tend to have higher margins than small cars.

Key risk factor to watch going forward

In fiscal 2Q18, Toyota reported higher revenues as well as stronger net profit margins. The recent depreciation of the Japanese yen played a key positive role in those financial figures. Going forward in the second half of fiscal 2018, Toyota’s revised forecasts could help it keep investor confidence.

We should keep an eye on the Japanese yen against key currencies such as the US dollar and the euro. Any consistent strength for the Japanese yen could hurt Toyota’s profitability, which could, in turn, lower its future earnings growth forecast. It could also drive Toyota’s valuation multiples lower going forward.

In the next part of this series, we’ll see what Wall Street analysts are recommending for Toyota after its solid fiscal 2Q18 earnings.

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