Honda Motor Company

Presented By: Zach Bodine

March 9, 2006
Stock Fundamentals
Price

52-Week High

52-Week Low

Average Volume (3 months)

Market Capitalization
$29.54

$30.36

$23.75

539,598

$55.55 Bil
Investment Recommendation

Buy/Hold
Key Ratios
Ratios (all per share)
P/E Ratio
Earnings
Dividend and Yield
Financial Strength Ratios
Quick
Current
Long-Term D/E
Total Debt to Equity
Return on Equity (per share)
Return on Assets

13.46
$2.19
0.34 (1.10%)

0.84
1.13

0.839
13.52%
5.03%


Growth Percentages
Over the past 5 Years

Revenue

Dividend Per Share

Earnings Per Share

Operating Income


7.2%

19.42%

14.1%

8.2%
Company Description
Automotive Manufacturers
Major
1. Automobiles
2. Motorcycles
3. Power Products
4. Financial Services


HMC Sales Allocation Over the Past 9 Months
12%
81%
3%
4%
Motorcycles
Automobiles
Financial Services
Power Products
Honda is the Worlds Largest motorcycle manufacturer
but is most known for its automotive industry
Global Position
Over 9 month span
Honda generated 59% of its automobile
profit from the North America alone,
which was an increase of 2.5% from a
year ago.
However, Asia led in Motorcycle sales
with 27.5%, while N.A. had 25.5%. This
was opposite of a year ago.
HMC Sales Allocation Across Countries (last
reported 9 mo.)
18%
54%
10%
11%
7%
Japan
North America
Europe
Asia
Other Regions


Sales for the last 9 months
ended Dec 30, 2005 totaled
$60.9B, and Sales for all of 2005
totaled $80.5B.

Automobile Business
9 months ended
Dec. 30, 2005
Sales Make
up
% change from
previous year
Japan 18.50% -2.70%
North America 58.90% 2.40%
Europe 8.40% 0.30%
Asia 9.30% -0.30%
Other Regions 4.60% 0.30%
Hondas Automobile Brands
Hondas principal
automobile products
include passenger cars
under:

Legend, Accord, Civic,
City, Fit Saloon, Acura
RL, Acura TL, and
Acura TSX brands
Multiwagons, Minivans,
Sport utility vehicle, and
Sports coupe under:
Elysion, Odyssey, Step
Wagon, Edix, FR-V,
Stream, Fit, Jazz, Pilot,
Element, CR-V, Acura
MDX, and Acura RSX
brands
Consumer Reports Top Automobile picks for 2006


Top Small Sedan (less than $20gs)
Top Family Sedan ($20-$30gs)
Top Upscale Sedan ($30-40gs)
Luxury Sedan
SUV ($30gs and more)
Small SUV (less than $30gs)
Top Minivan
Top Pick-up Truck
Green Car
Fun to drive

Honda Civic
Honda Accord
Acura TL (Honda)
Infiniti M35 (Nissan)
Toyota Highlander Hybrid
Subaru Forester
Honda Odyssey
Honda Ridgeline
Toyota Prius
Subaru Imprezza
Additionally, Honda was 2
nd
overall in vehicle reliability right behind Lexus
Marketing/Technology
The new ACE System
(Advanced Compatibility
Engineering)
5 star rating
Hybrid Engines
ASIMO
Jet Engines Manufacturing
Nattokinase




Research and Development
Honda currently has individualized R&D facilities in Japan
for motorcycles, automobiles, and power products, and a
motorcycle R&D center in China for its increasing market
demand.
HRI (the Honda Research Institute) is located in Japan,
U.S., and Germany.
- Research focus on: robotics technology, automotive
safety, ultra lightweight products, and fuel cell technology
- Deriving automotive fuel from plants.
Honda also has networked facilities in the UK, Germany
and Italy (to help focus on the European market more
independently)
Management Structure
President and
Representative Director
Takeo Fukui
Age: 62
Executive Vice-President and
Representative Director
Satoshi Aoki
Age: 60
Promotion of Objective Management:
Staff composed of 22 personnel. Two director positions and one
auditor assigned annually outside the company.
Temporary directors are paid according to how well the Company
performs during their tenor.


Image
New Jersey Supreme Court: Honda sued for
engine failure by a leasee.
Magnussen Warranty Act
Engine failure occurred @ 22,000 miles
Losing company must cover all legal fees
AAM supports Honda

Clean- Fuel tax deduction (2005)
Tax breaks under new energy bill (2006)

Competitive Analysis
HMC F GM TM Industry
Market Cap: 53.25B 14.06B 10.86B 171.94B 53.25B
Employees: 137,827 300,000 327,000 265,753 300.00K
Qtrly Rev Growth (yoy): 15.80% 3.60% -1.20% 14.80% 5.60%
5 year Sales Growth 9.74% 1.06% 1.34% 11.12% N/A
Revenue (ttm): 81.00B 177.09B 192.60B 173.35B 177.09B
Gross Margin (ttm): 29.58% 8.21% 1.53% 18.27% 18.27%
EBITDA (ttm): 8.64B 16.10B 5.82B 24.35B 16.10B
Oper Margins (ttm): 7.09% 1.00% -5.34% 8.30% 7.89%
Net Income (ttm): 4.05B 2.23B -8.45B 10.82B 3.37B
EPS (ttm): 2.19 1.048 -15.14 6.61 2.19
P/E (ttm): 13.22 7.22 N/A 15.99 15.99
PEG (5 yr expected): 2.06 2.07 N/A 2.9 2.07
P/S (ttm): 0.67 0.08 0.06 1 0.66
ROE 14.10% 15.70% -13.00% 12.70% N/A
ROA 5.10% 0.80% -0.70% 4.70% N/A
Dividend Yield 1.12% 5.23% 11.09% 1.20% N/A
Industry Trends
Trend of Companies performing well in foreign markets, but not
domestically.
GM: Dealing with Health care problems ($100B annually)
Sold GMAC Subsid.
Possibility of bankruptcy in the future

Ford: $1.6B decline in car sales from years ending 04 05
Sold Hertz rentl car business

Chrysler: Changes management around
Only U.S. manufacturer not in the red

Volkswagen: high prices, low quality, plus labor force issues
Toyota and Honda are prospering well in U.S. market
Everyone looks to China for expansion


Market Performance
One Year Price Performance Compared to the S&P 500
Market Performance
5 year Price Performance Compared to the S&P 500
Common Size Financials
Income Statement
Revenue (ttm): 81.00B
Revenue Per Share (ttm): 43.86
Qtrly Revenue Growth (yoy): 15.80%
Gross Profit (ttm): 24.29B
EBITDA (ttm): 8.64B
Net Income Avl to Common (ttm): 4.05B
Diluted EPS (ttm): 2.19
Qtrly Earnings Growth (yoy): -11.70%

Balance Sheet
Total Cash (mrq): 5.27B
Total Cash Per Share (mrq): 2.865
Total Debt (mrq): 27.54B
Total Debt/Equity (mrq): 0.839
Current Ratio (mrq): 1.128
Book Value Per Share (mrq): 17.82

Cash Flow Statement
Operating Cash Flow (ttm): 5.18B
Levered Free Cash Flow (ttm): 1.25B
Valuation Data For Return on Equity
Beta = .46
Risk Free Rate = .486
Avg. Market Risk = 11%
Re = Rf + B(Equity Risk Premium)

Re = .0486+.46(.11-.0486) = 7.68%
Valuation of Stock Price
Intrinsic Value based on Future Cash Flows

Conservative Growth rate
Normal Growth
Re= 7.68%
Owner earnings= $3.14B
Growth rate = 4%
Second Stage Growth rate = 2.5%
Estimated Intrinsic Value= $39.11

Valuation continued
Diminishing Growth
Using revenue growth of 14.3% from 2003-2004, and 6%
from 2004-2005, you could project that revenue growth
from 2005-2006 could be equal to:
6/14.3=.4196
.4196*6= 2.52% (new assumed growth rate)
Leaving all other variables the same
Estimated Intrinsic Value = $34.84
Valuation continued..
Impressive growth
By Viewing the table which displays sales in yen over the
9 months ended 12/31/2004, and then looking at the
sales in yen for the 9 months ended 12/31/2005 you get
the following numbers
2004 sales = 6300551
2005 sales =7074255
Growth rate= 7074255/6300551= 12.2%
Adjusted to 10%
Estimated Intrinsic Value = $62.50
Analysts Ratings finance.yahoo.com
RECOMMENDATION SUMMARY*

Mean Recommendation (this week): 1.3
Mean Recommendation (last week): 1.3
Change: 0
Industry Mean: N/A
Sector Mean: N/A
S&P 500 Mean: 2.46
Current
1 Month
Ago
3 Months
Ago
Strong Buy 2 2 2
Moderate Buy 1 1 1
Hold 0 0 0
Moderate Hold 0 0 0
Sell 0 0 0
Pros and Cons
Pros:
Fuel/ cost efficient products and technology
Extensive R&D programs
Superior Technology
Moving towards differentiated product lines
One of the few currently profiting companies in its industry
Objective Management Structure
Continuous increase in automotive sales in North America, particularly U.S.,
and in Europe as well.

Cons:
Fluctuation of Exchange rates, makes for inconsistent earnings
Japans Economy
Automotive industry very susceptible to interest rates
Toyota may be a better buy
Questions
?