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New Coverage: $45 Trefis Price Estimate for Honda

Posted
2/12/2011 4:10:00 PM
By: Trefis
Referenced Stocks:F;GM;HMC;TM

Honda Motor Co Ltd. ( HMC ) develops, produces and manufactures a variety of motor products, ranging from small general-purpose engines and scooters to specialty sports cars. Honda competes with players like Toyota ( TM ), GM ( GM ), Ford ( F ), Daimler (ETR:DAI), Volkswagen (ETR:VOW), Hyundai (SEO:005380) and others.

Aside from their core automobile and motorcycle businesses, Honda also manufactures garden equipment, marine engines, personal watercraft and power generators, among others. Honda manufactures a variety of power products including tillers, portable generators, general-purpose engines and grass cutters. Additionally, Honda offers a variety of financial services to its customers and dealers through finance subsidiaries. Honda conducts its operations in Japan and worldwide.

We recently launched coverage of the company with a Trefis Price estimate of $45.04 for Honda's stock, about 3% above the current market price of $43.79. We've broken down our analysis of Honda into seven major business segments as shown below.

  1. Vehicle Leases & Loans
  2. Honda Vehicles Sold in North America
  3. Motorcycles, ATVs & Water Motors
  4. Honda Vehicles Sold Internationally
  5. Honda Vehicles Sold in Japan
  6. Generators, Pumps & Other Power Products
  7. Acura

Honda was the first Japanese automobile manufacturer to release a dedicated luxury brand, Acura, in 1986 and has been the world's largest motorcycle manufacturer since 1959, as well as the world's largest manufacturer of internal combustion engines measured by volume. In 2010, the company was the eighth largest automobile manufacturer based upon sales figures.

Honda's automobile division contributes more than 37% to the overall value of Honda. We have broken down the total automobile division into four separate divisions - Honda vehicles sold in North America (15.9% of total value), Honda vehicles sold internationally (14.2% of total value), Honda vehicles sold in Japan (6.1% of total value), and Acura (1.3% of total value).

After the automobile divisions taken together, the vehicle lease and loan business is the most valuable division for Honda. Surprisingly, Honda's motorcycles, ATVs & water motors division and Honda vehicles sold in North America are nearly equal in value.

Honda offers a variety of financial services to its customers and dealers through finance subsidiaries in countries including Japan, the United States, Canada, the United Kingdom, Germany, Brazil and Thailand, with the aim of providing sales support for its products. The services of these subsidiaries include:

  1. Retail lending
  2. Leasing to customers
  3. Wholesale financing to dealers.

Financial services revenues in 2009 constituted 6% of the overall Honda revenues worldwide. According to the breakdown by geographical markets of Honda's financial services, North America contributes the maximum value with a revenue share of 90.6% in 2009.

Honda's vehicle financing division is driven by high margins and has about $53 billion of leases and loans outstanding, on which it earns around 12% as interest and lease payments.

You can see the complete $45 Trefis Price estimate for Honda's stock here.