Toyota Motor stock target cut at UBS, shares 'not quite undervalued'

UBS cut its price target for Toyota Motor (NYSE:TM) in a note Thursday, citing declining valuations across the global automotive sector. The price target was reduced from JPY3,400 to JPY2,600 as UBS analysts adjusted their earnings estimates for the company. 

Despite Toyota’s solid earnings, UBS noted that the company’s stock isn’t clearly undervalued and maintained a Neutral rating.

UBS pointed out that while Toyota’s multi-pathway strategy, including its hybrid electric vehicle (HEV) and plug-in hybrid electric vehicle (PHEV) offerings, should contribute to stable earnings, the overall automotive sector is facing challenges. 

“The stock’s PER has fallen along with global automotive OEMs’ valuations,” UBS said, explaining why they do not see the stock as significantly undervalued despite its recent decline of more than 30% from its peak.

The report also addressed the impact of forex rates on Toyota's future earnings. UBS revised its forex assumption to JPY145/$ from JPY150/$ for the second half of the year and noted that a 1% yen appreciation could reduce Toyota's FY3/26 earnings per share by 1.8%.

Looking ahead, UBS expects Toyota’s operating profit to remain relatively flat in FY3/26 at ¥4.5 trillion, with an operating margin of 9.2%. 

While higher volumes and improved product mix should offset increased selling expenses, the bank says the downward pressure from global industry trends remains significant.

In terms of valuation, UBS reduced Toyota's FY3/26 price-to-earnings ratio (PER) to 9x, compared to its previous estimate of 11x. 

Despite Toyota’s historical premium compared to other automakers like Mercedes-Benz (OTC:MBGAF), which is trading at a 5x PER, UBS stated, “We do not view the stock as clearly undervalued.”

Overall, the revised price target reflects both currency-related factors and the broader sector’s declining valuations.