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Investing.com -- Bernstein has upgraded Toyota (TYO:7203) (NYSE:TM) to Outperform from Market-Perform and raised its price target to 3,500 Japanese yen from ¥2,550 yen.
Analyst Masahiro Akita said a clearer outlook on U.S. import tariffs allows investors to focus more on Toyota’s positive trajectory, particularly its new 20% return on equity (ROE) target.
“Traditionally, Toyota has been a cautious company that does not disclose specific numerical targets. The fact that it has now set a 20% ROE target indicates that the company is serious about achieving this goal and has a clear vision of the path,” Akita wrote.
Toyota’s U.S.-listed shares rose more than 1% in premarket trading Monday.
Bernstein expects stronger hybrid sales to lift margins in the near term, noting that Toyota’s hybrid sales are up 19% year-to-date in 2025, with further growth of 9.9% forecast for this year and 7.3% in 2026.
Over the mid-to-long term, value chain profit growth—projected to increase by 165 billion yen year-on-year in full-year 2026 (FY2026)—and a realignment of group capital relationships will help improve returns.
Akita projects an operating profit of about 5.9 trillion yen by FY2026/27, supported by buybacks of policy shareholdings and improved shareholder returns. He also said Toyota’s “multi-pathway” approach, with exposure across hybrids, battery EVs and fuel-cell vehicles, positions it well to manage the industry’s transition.
The analyst also pointed to progress on U.S. tariff negotiations, with the rate cut from 25% to 12.5% reducing Toyota’s annual burden to roughly 620 billion yen. Toyota’s brand strength and pricing power in hybrids should allow it to absorb much of the impact.
While the company lowered its FY2026 operating profit guidance to 3.2 trillion yen to reflect a full-year tariff hit, Akita called the move “somewhat of a low ball.”
Bernstein forecasts operating profit of 3.7 trillion yen for that year and 4.3 trillion yen in FY2027, citing price pass-through and cost savings as realistic offsets.
Toyota has already delivered high returns, with ROE of 16% in FY2024 and 14% in FY2025 despite challenges from recalls and higher costs.
Akita believes the automaker can reach its 20% ROE goal sooner than its own timeline suggests, noting that at such levels, Toyota’s price-to-book multiple could climb to around 2x, implying further upside beyond the new target price.