Morgan Stanley (MS) analysts have recently adjusted their price targets for two major Japanese automakers, Toyota and Honda, with a particularly positive outlook for Honda.

Honda Motor Co (NYSE, TYO:7267)

• New Price Target: Increased to 2,250 yen from 2,200 yen.
• Rating: Maintained at Overweight.
• Key Factors:
  • Profitability Prospects: Improved profitability driven by a broader lineup of hybrid electric vehicles (HEVs) and an enhanced supply chain.
  • Motorcycle Division: Strong margins due to cost reductions, despite rising R&D expenses.
  • Cost Increases: Anticipated higher overall costs, mainly from in-house battery production and software development.
  • Shareholder Returns: Positive outlook supported by a significant 300 billion yen ($1.91 billion) share buyback program.
  • Analyst Note: “Shareholder returns still one key to getting stock price above book value. Honda still our Top Pick for industry.”

Toyota Motor Corp (NYSE, TYO:7203)

• New Price Target: Raised to 3,500 yen from 3,400 yen.
• Rating: Maintained at Equal Weight.
• Market Position: Recognized as Japan's biggest automaker, Toyota continues to hold a substantial market position despite the recent challenges discussed in their April sales and production report.

Conclusion

Morgan Stanley's updates highlight a favorable outlook for Honda, particularly due to its hybrid vehicle lineup and shareholder return strategies. Toyota's moderate price target increase reflects its steady market position, although it faces significant competitive and operational challenges.

Key Takeaways

• Honda:

  • Increased price target to 2,250 yen.
  • Maintained Overweight rating.
  • Improved profitability outlook, especially in HEVs and motorcycles.
  • Strong shareholder returns with a substantial share buyback.

• Toyota:

  • Increased price target to 3,500 yen.
  • Maintained Equal Weight rating.
  • Continues to be Japan's largest automaker with a stable market presence.

These updates from Morgan Stanley indicate a cautious optimism for both automakers, with a stronger preference for Honda based on its profitability prospects and shareholder returns.

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