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Honda (HMC) Slashed to Strong Sell: Should You Dump It?

On May 17, 2016, Zacks Investment Research downgraded Honda Motor Co., Ltd. HMC to a Zacks Rank #5 (Strong Sell), placing it among the bottom 5% of all stocks ranked by Zacks.

Why the Downgrade?

Honda posted a loss in the fourth quarter of fiscal 2016, mainly due to high quality-related expenses and unfavorable foreign currency effects. The company’s consolidated earnings per share for fiscal 2016 also plunged 32.4% year over year to ¥191.16 ($1.70). Moreover, the figure missed the Zacks Consensus Estimate of $2.84.

The Japanese automaker is the largest customer of the faulty Takata airbags that can explode and shoot out metal fragments in a crashed vehicle. A large number of recalls related to these defective airbags has significantly increased Honda’s expenses.

Higher selling, general and administrative (SG&A) and research and development (R&D) expenses are affecting Honda’s operating income. SG&A expenses increased 22.6% year over year in fiscal 2016. Also, R&D expenses rose 8.3% in fiscal 2016.

For fiscal 2017, Honda expects revenues to decline 5.8% to ¥13.75 trillion ($7.64 trillion).

In fact, analysts do not seem too hopeful about Honda’s performance in fiscal 2017. Over the past month, the company has witnessed a 35.7% decline in the Zacks Consensus Estimate for fiscal 2017 earnings to $1.98 per share.

Stocks to Consider

Some better-ranked automobile stocks include Lear Corp. LEA, Superior Industries International, Inc. SUP and Oshkosh Corporation OSK. All the three stocks sport a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
HONDA MOTOR (HMC): Free Stock Analysis Report
 
SUPERIOR INDS (SUP): Free Stock Analysis Report
 
LEAR CORPORATN (LEA): Free Stock Analysis Report
 
OSHKOSH CORP (OSK): Free Stock Analysis Report
 
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