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Sales of Subaru (OTCPK:FUJHY) cars are developing in the United States. In September, U. S. auto sales were up 23. 4% year-over-year. Growth continues to look good, as this is the fourteenth consecutive month of increases in auto sales. The Subaru Forester is especially popular, with 15,237 units sold in September (a 49% year-on-year increase).
Japanese automakers are known for their effective operations with the LEAN method. LEAN is a way to optimize an organization’s people, resources, effort, and power to generate value for visitors. Subaru is among the 3 most sensible operating margins of Japanese automakers. And with the high profit margins, we also see an orderly balance sheet with a forged cash-to-debt ratio of 4. 7.
The higher score on the Looking for Alpha Quant score is also a plus. Subaru plays well and ranks 76th out of 4641 overall. All scores are solid. What’s missing is the profitability of Subaru, which gets a B. The industry’s average gross profit margin is 36%, while Subaru’s is “only” 20%.
Quantitative Ranking and Factor Scores (Looking for Alpha)
However, the moderate gross margin may be a merit as it makes Subaru worth more than its competitors, and that is reflected in sales. Sales have increased considerably this year. Consolidated sales (in yen) increased by 38%. All in all, very smart figures, which is why I consider Subaru a “strong buy”.
Subaru Consolidated Revenue (Subaru Investor Relations)
The car market is doing well. Subaru expects strong expansion in the U. S. He is a U. S. citizen for his well-known styles. The Forest style is the best-selling style and has seen a 46% sales expansion in the United States. The Outback and WRX also sold well with sales expansion of 33% and 72%. %.
High rates of expansion are accompanied by tight profit margins. But we don’t see that at Subaru. The operating margin is smart: 7. 8%.
Subaru, like Honda and Toyota, are doing very well to maintain their profit margins. We see that many Japanese automakers have struggled to maintain profitability in 2021. But Subaru, like Honda Motors and Toyota, remained profitable. Subaru knows how to manage its precios. la LEAN methodology.
This year, the profit margin of many automakers has increased significantly. Perhaps they increased their advertising values in anticipation of acquisition value inflation. This is having a positive effect on the profit margin for now, and if inflation goes down, there will be no shorts. -Contraction of the term margin.
Operating Margins of Common Japanese Automobile Manufacturers (Annual Reports)
“The Subaru Difference” is synonymous with creation, fun, peace of mind and environmental technologies. Subaru is an automaker committed to “human-centered manufacturing. “Safety is its guiding principle.
The Forester is a crossover with both highway and rough road capabilities. It is an SUV of the Legacy Touring Wagon. The Forester is Subaru’s best-selling model lately.
The U. S. is Subaru’s largest market and also poses a geographic risk. Now the U. S. will most likely enter a recession due to the sharp rise in interest rates. And since car sales are cyclical, this can be a huge negative for Subaru.
Subaru doesn’t expect a stalemate just yet. In fact, the outlook for fiscal year 2024 is strong. Subaru plans to increase its car production by more than 16% next year. And operating profit increased to 12%. These are prospects for expansion forged, despite the threat of a depreciation of the yen.
However, there are some short-term challenges. The price of the yen has fluctuated particularly in recent years. In addition, Subaru continues to suffer due to its semiconductor supply chain and logistical constraints. Despite those uncertainties, Subaru maintains its strong expansion forecast.
Subaru’s strong earnings expansion benefits shareholders. In the current fiscal year, Subaru has repurchased more than 21 billion yen in percentages, bringing the repurchase yield to approximately 4%. That’s decent because Subaru will also pay a dividend. The existing percentage value tells us that the dividend yield is 1. 5%.
Financial Highlights (Subaru Annual Reports)
Subaru has a perfect inventory return policy, as over the last five years it has backed an average of around 57% to its shareholders. So in the long run, they will be able to achieve it without any problems.
In general, Japanese automakers have strong balance sheets and abundant liquidity. Subaru has 1. 5 billion yen in cash and marketable securities on its balance sheet, and only 239 million yen of long-term debt and 71 million yen of short-term debt. Interest expenses are well covered thanks to strong profits (the interest policy is 8. 2). In recent years, this relationship was even better. Subaru proves that it has a smart leverage policy. And that’s beneficial, as automakers have low profit margins and a lot of overhead. This makes Subaru much more resilient to the cyclical automotive market.
Increased car sales, maximum profit margins, adequate leverage, and a cash-rich balance sheet. Subaru’s stock valuation is expected to come at a premium to that of its competitors. In fact, the stock is undervalued, as its value has fallen since September.
Japanese automaker Mitsubishi Motors appears to have the cheapest market valuation. However, Mitsubishi’s earnings have fluctuated more in recent years than Subaru’s. In my opinion, Subaru may be bigger than Toyota and Honda Motors. These corporations have strong operating margins and have had many successes. years. Subaru stands out with a P/E ratio of just 8. 3. And it’s also underrated compared to its old average of 14.
P/E ratio of well-known Japanese automakers. (Analyst calculations)
Another way to look at stock valuation is to include money and debt. I think that’s vital for capital-intensive corporations like automakers. Automakers with enough money have greater monetary security and can grow faster. In addition, they can distribute money to shareholders. Subaru’s EV/EBIT ratio is just 2. 6, while its five-year average is 6. 2. This shows that the company is undervalued compared to its five-year average.
The industry average EV/EBIT ratio is 13. 0, which means that Subaru is also undervalued relative to the market. Searching for Alpha Quant gave the name a decent grade of A.
Subaru is a Japanese company indexed in Tokyo. Due to emerging interest rates in the United States, the price of the Japanese yen has fallen over the past two years. This boosts Japanese exports because American consumers pay less for the same exports. However, American investors in Japanese stocks face currency risk.
The Bank of Japan has kept interest rates around -0. 1% since 2016, hoping this will boost the economy. Core inflation in Japan has remained below the 2% target for many years. But recently, core inflation has reached 3%. . Analysts expect a 10 basis point rate hike in the first part of 2024, but I don’t think it will drive up the price of the yen much. Lately, interest rates have a more powerful influence on the price of the yen than on the dollar.
There is a silver lining for U. S. investors in Japanese stocks, as the Federal Reserve is expected to cut interest rates next year. The average federal budget rate is expected to rise to 5. 6% this year and fall to 5. 1% next year. By 2025, FOMC members expect the federal budget rate to fall to 3. 9%. The dollar’s weakness is smart for investors who are now buying Japanese stocks. When the yen appreciates against the dollar, it will provide higher returns to American investors. However, this may just be Japanese exports.
USD:YEN (seeking alpha)
Subaru has strong investment criteria. Solid expansion rates, solid outlook, superior profit margins, a strong balance sheet, and an attractive market valuation. As a result, Subaru scores favorably in the Looking Alpha Quant rating. Subaru is doing well, and that’s partly due to the strength of the dollar. Revenue is up 38% this year. The profit margin is also strong and ranks as the third most productive profit margin among Japanese automakers.
The higher profit margin is due to Subaru’s ability to develop consistent domestic efficiency. Subaru doesn’t have much to worry about emerging interest rates due to its abundance of money. Subaru can use this money to grow its business or praise its shareholders. It will pay a fair dividend and repurchased more than 4% of its notable shares last quarter. Share buybacks increase the dividend because there are fewer notable percentages.
Subaru’s expansion customers are smart, but there are risks. The United States is Subaru’s largest sales market. And that comes with a geographic risk. There is a strong possibility that the U. S. will end up in a recession due to strong interest rates. The automotive market is also cyclical in nature. However, good inventory valuation provides enough protection to absorb setbacks. The name is valuable and I hereby give Subaru inventory a “strong buy”.
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