Toyota is steering toward better days

The well-received new Corolla should help the Japanese carmaker continue its rebound from earlier, costly missteps.

By Jonathan Berr Jun 10, 2013 9:57AM
In 2010, Toyota (TM) CEO Akio Toyoda faced the humiliating prospect of recalling millions of vehicles over concerns about sudden acceleration, damaging a reputation for quality at the company his grandfather founded. The issue, which cost the world's largest automaker more than $1 billion to settle, still haunts Toyota, although it's becoming less of a problem.
During the last quarter, Toyota's profit in North America, the automaker’s largest market, was below analysts' expectations. And vehicle sales in April fell for the first time in 18 months as the Detroit Three automakers gained share. But May was better. Overall sales rose 2.5% to 207,952 units, fueled by increases in the Prius, Rav 4 and Avalon.

Investors expect the improvements to continue.

One reason even better performance may be possible is last week's unveiling of a long-overdue redesign of its Corolla economy car (pictured), which impressed members of the automotive trade press. Said Car & Driver: "There's no denying the new Corolla is a visual step up from the current version that blends into the background so quickly as to be darn near invisible."

Promotional image of the 2014 Toyota Corolla (© Toyota Motor Sales)One thing that certainly should be visible to investors is the company’s stock.

U.S. shares of the Japanese automaker have surged almost 25% this year, outperforming rivals from Japan such as Honda (HMC) and the U.S. such as General Motors (GM) and Ford (F). A weakening yen has made Toyota's cars especially lucrative in the U.S., which explains why the company recently forecast that revenue and profit will climb to their highest levels in more than six years in the fiscal year ended in May 2014.

Some pundits have said those forecasts may be conservative.

Toyota shares are cheap, trading at a price-to-earnings multiple of 18.67, which is near a five-year low. The stock, however, trades at a premium to other automakers such as GM and Ford. Toyota does they have a decent upside, though. Analysts have a 52-week price target on the stock of $126.54, about 8% higher than where it currently trades. The company also pays a dividend.

If the yen remains weak and consumers remain interested in its cars, Toyota should continue to do well. Given the valuation, the time to buy the stock would be now.

Have any questions about this or any other "Killer Companies" episode, or suggestions for companies to cover? Submit them in the comments section below.

Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter at @jdberr.
Tags: FGMHMCTM
7Comments
Jun 10, 2013 10:40AM
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Doesn't surprise me in the least...

And the 25-40 somethings will swoon over how innovating it is ...

Jun 10, 2013 11:05AM
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Americans that buy Japanese products suck and should be tried for treason against the USA and hanged.  The Japanese are the only country in modern day war to attack the US on US soil.  Over 100,000 Americans died fighting the Japanese to defend this country and our freedoms. 

 

Everytime an American buys a Japanese vehicle they disgrace the honor of each life that was lost in WW2. 

 

Whats a shame is soo few middle eastern people and no 1 country was involved in the terrorist attacks of 9/11 yet Americans have a hatred towards almost all Middle Eastern countries and dont want to buy middle eastern oil because of the attacks YET 1 country of Japan attacked the USA December 7, 1941 and Americans now say that was along time ago move on.  How UNpatriotic but very IDiotic!

Jun 10, 2013 12:15PM
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My only question, Public Serp....Did you do any worthwhile research on GM,Ford or Chrysler ??
Jun 10, 2013 10:26AM
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new corolla looks like a mix between lancer and dart
Jun 10, 2013 10:57AM
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Toyota is the biggest and most recalled car company in the World. I will pass on buying one.
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