Honda Motor (HMC) is expanding its business in Asia, growing its global network to increase efficiency and introducing new products to satisfy local markets. However, the economic downturn in the U.S. and Europe continues to negatively affect Honda’s operations, especially the Power Products and Other business.
Moreover, Honda’s global position is threatened by unfavorable currency exchange rates, flat-to-lower sales in its key markets and increased competition. Therefore, we have downgraded our recommendation on the stock from Outperform to Underperform with a target price of $28.
Our long-term Underperform recommendation on the stock indicates that it would perform lower than the overall market. Our $28 target price, 13.7X our 2011 EPS estimate, reflects this view.