A Look at Toyota’s Valuation after Its Fiscal 2018 Results



Toyota’s forward EV-to-EBITDA

On May 16, Toyota Motor’s (TM) forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 9.2x, much higher than other mainstream automakers’ (XLY) EV-to-EBITDAs.

General Motors’ (GM) forward EV-to-EBITDA was 7.4x, and Fiat Chrysler Automobiles’ (FCAU) was 2.3x. However, Ford Motor Company’s (F) was much higher at 13.4x. These multiples were calculated based on the estimated EBITDAs of the respective companies for the next 12 months.

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Forward PE

Likewise, TM’s forward PE multiple was 10.1x, also higher than the multiples of its peers, including Ford’s 7.4x, as we can see in the chart above. Toyota has a stronger global product portfolio in the luxury vehicle and SUV (sport-utility vehicle) categories compared to its peers. Luxury vehicles and SUVs tend to yield higher profit margins than small cars.

Key risk factor in fiscal 2019

In fiscal 2018, the company reported stronger revenues along with expanding profit margins. Initially, Toyota had given dismal guidance for its fiscal 2018 based on the assumption of a stronger Japanese yen. However, weakness in the yen played a key role in boosting its financial figures. Going forward in fiscal 2019, the forecast doesn’t seem favorable for Toyota, as we discussed in the previous part of this series.

Therefore, investors may want to keep a close eye on the yen’s movements against key currencies such as the US dollar and the euro in the coming quarters. A consistent appreciation of the yen against these two currencies could hurt the company’s profitability, which could lower its future earnings growth forecast and drive its valuation multiples lower going forward.

Continue to the next article to learn what Wall Street analysts are recommending for Toyota after its weak fiscal earnings outlook.


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