Prospects for Rivian Automotive (RIVN) and Honda Motor (HMC) Before Upcoming Earnings

Despite the 22-year benchmark interest rates making loans expensive, auto sales in the United States are rising. The resilient demand should help the industry perform well in the upcoming quarters.

However, not all stocks are well-positioned to capitalize on the industry tailwinds. Ahead of the upcoming earnings (for the quarter ended September 2023) of Honda Motor Co., Ltd. (HMC) and Rivian Automotive, Inc. (RIVN), I think HMC is a wise investment, but RIVN is best avoided now.

Analysts expect HMC’s revenue for the fiscal second quarter ended September 2023 to increase 14.8% year-over-year to $33.35 billion. On the other hand, while RIVN’s revenue is expected to increase 146.1% year-over to $1.32 billion, the company is expected to report a loss of $1.32 per share.

In September, the number of new vehicles sold in the U.S. was 1,340,921 units, up 19.3% from September 2022. This increase in sales can be attributable to rising demand for electric vehicles and improved economic conditions.

However, the auto industry in the United States faces the challenges of international competition, shifting consumer preferences, and ride-sharing programs.

RIVN has been facing profitability and cash flow challenges, which could hinder its growth prospects. On the other hand, HMC has a strong track record of delivering consistent earnings and has been investing in innovative technologies to stay competitive in the evolving automotive industry.

Let’s delve into the fundamentals of the featured stocks.

Stock to Buy:

Honda Motor Co., Ltd. (HMC)

Headquartered in Tokyo, Japan, HMC develops, manufactures, and distributes motorcycles, automobiles, power products, and other products in Japan, North America, Europe, Asia, and internationally. It operates through four segments: Motorcycle Business; Automobile Business; Financial Services Business; and Life Creation and Other Businesses.

HMC’s forward EV/Sales of 0.67x is 40.5% lower than the industry average of 1.12x. Its forward Price/Sales of 0.42x is 49% lower than the industry average of 0.83x.

HMC’s trailing-12-month levered FCF margin of 8.42% is 65.2% higher than the industry average of 5.10%. Its trailing-12-month EBITDA margin of 13.12x is 20% higher than the industry average of 10.93x.

For the first quarter that ended June 30, 2023, HMC’s sales revenue increased 20.8% year-over-year to ¥4.62 trillion ($31.32 billion). The company’s operating profit increased 77.5% year-over-year to ¥394.45 billion ($2.67 billion). Its profit increased 134.1% year-over-year to ¥382.95 billion ($2.60 billion). In addition, its EPS came in at ¥219.06, representing an increase of 151.1% year-over-year.

The consensus revenue estimate of $129.77 billion for the fiscal year ending March 2024 represents a 386.9% increase year-over-year. Its EPS is expected to grow 39% year-over-year to $3.97 for the same year. HMC’s shares have gained 50.7% over the past year to close the last trading session at $33.07.

HMC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

HMC also has an A grade for Value and a B for Growth, Stability, Sentiment and Quality. It is ranked first among 51 stocks in the B-rated Auto & Vehicle Manufacturers industry. Click here for the additional POWR Ratings (Momentum) for HMC.

Stock to Sell:

Rivian Automotive, Inc. (RIVN)

RIVN designs, develops, manufactures, and sells electric vehicles and accessories. The company offers five-passenger pickup trucks and seven-passenger sports utility vehicles.

RIVN’s forward EV/Sales multiple of 2.35 is 109.8% higher than the industry average of 1.12. Its forward Price/Sales multiple of 3.96% is 377.5% higher than the industry average of 0.83.

RIVN’s trailing-12-month gross profit margin of negative 96.08% is compared with the industry average of 35.50%. Its trailing-12-month EBIT margin of negative 210.90% is compared with the industry average of 7.36%.

For the second quarter that ended June 30, 2023, RIVN’s gross loss came in at $412 million, while its loss from operations stood at $1.29 billion. Additionally, RIVN’s net loss came in at $1.20 billion.

Moreover, as of June 30, 2023, the company’s cash and cash equivalents stood at $9.26 billion, compared to $11.57 billion as of December 31, 2022. Also, its current assets amounted to $12.86 billion, compared to $13.13 billion as of December 31, 2022.

Street expects RIVN’s EPS to come in at a negative $4.91 for the year ending December 2023. Over the past year, the stock has lost 42.8% to close the last trading session at $18.09.

RIVN’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, which equates to a Strong Sell in our proprietary rating system.

It is ranked #45 in the same industry. It has an F grade for Value, Stability and Quality. To see additional RIVN ratings for Growth, Sentiment, and Momentum, click here.

What To Do Next?

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HMC shares were trading at $32.87 per share on Thursday afternoon, down $0.20 (-0.60%). Year-to-date, HMC has gained 45.60%, versus a 13.72% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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