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Investing.com -- Macquarie analysts upgraded Toyota Motor (NYSE:TM) to Outperform from Neutral, citing a production recovery, favorable foreign exchange trends, and strong hybrid electric vehicle (HEV) sales.
"Less exciting earnings, but better quarters ahead," the firm’s analysts wrote, noting that Toyota’s earnings may appear soft due to slower-than-expected volume recovery despite the yen’s depreciation.
For the fiscal fourth quarter ending March 2025, Macquarie expects Toyota’s operating profit to reach ¥1.3 trillion, below the Visible Alpha consensus estimate of ¥1.5 trillion.
However, analysts see "better earnings visibility in the coming quarters" due to North American production recovery and low levels of channel inventory, which position Toyota favorably.
The firm also highlights a potential shift in Toyota’s approach to autonomous driving and software-defined vehicles (SDVs). They noted that on the same day that James Kuffner, Toyota’s former head of autonomous driving development, exited the company, Nvidia (NASDAQ:NVDA) CEO Jensen Huang announced a new partnership with Toyota.
"This was the first time the market heard about its upcoming software-defined vehicle," Macquarie said, suggesting Toyota may be moving toward a more software-centric model. SDVs, which enable feature updates through software rather than hardware changes, are often viewed as a driver of higher returns on equity (ROE).
Toyota’s stock surged 23% in December, outperforming the TOPIX index’s 4% gain, after a Nikkei Asia report suggested Toyota was targeting a long-term ROE of 20%.
While Macquarie initially considered that target "unrealistic," they now see potential catalysts, including share buybacks, capital management, and the expansion of high-ROE businesses like SDVs.
The firm raised its price target by 35% to ¥3,500, reflecting an increase in expected earnings for fiscal years 2026-2028 due to a weaker yen and stronger HEV sales.