UBS has adjusted its rating on Honda Motor Co Ltd from Sell to Neutral due to a 30% decline in Honda's share price since March 2024 and the company's lowered guidance following its second-quarter results.
UBS believes that the potential adverse effects of battery electric vehicles (BEVs) on Honda's business model have already been factored into the stock's current valuation. The firm sees limited downside risk for Honda's stock, leading to the decision to upgrade the rating to Neutral.
The new price target for Honda's stock is JPY1,300.00, down from JPY1,400.00.
UBS has also made adjustments to its earnings per share (EPS) projections for Honda. Estimates for the fiscal year ending in March 2025 have been reduced by approximately 10%, and for the fiscal years ending in March 2026 and beyond by about 4-5%. The adjustments reflect increased product-quality costs and greater losses from BEV operations.
The specifics of Honda's reported business integration are unclear and not reflected in the stock's valuation, raising questions about the effectiveness of Honda's strategies.
Any potential collaboration between Honda and other automotive giants would need to demonstrate clear benefits to Honda to be considered necessary or likely. The uncertainty surrounding these collaborations could impact investor confidence and the market perception of Honda's strategic direction.
The recent adjustments by UBS reflect a broader sentiment in the market regarding Honda's ability to navigate the challenges of the shift towards electric vehicles. The decisions made by key players in the automotive industry will shape the landscape for years to come. Investors will closely monitor Honda's strategies and the potential impact of external factors such as regulatory changes and technological advancements. Honda's ability to respond effectively to these challenges will be critical in maintaining its competitive edge.