Toyota TM
October 09, 2008 - 12:09am EST by
2008 2009
Price: 67.25 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 104 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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This will be pretty quick.  I wrote Toyota up extensively three years ago at a little bit  higher price and that writeup is still available.  We sold it at 140 and got back in at 100 too early and now its in the 60s.  We added to it today.


I don’t think you would find much disagreement that Toyota is one of the most admired companies in the world, and one of the most consistently profitable growth manufacturing companies in the world.


Toyota has no goodwill, and no debt and is trading below book value.  Their return on capital over time looks NOTHING like GM or Ford.  They don’t have legacy liabilities.  And they not only don’t have debt – they have a huge slug of excess cash.


But they are in a business that is just hated now and is seeing demand in the US at the worst in decades and Japan in recession too.


Lets take it a step further – if you go back to my analysis of Toyota in 2005 which I’m not going to do again I walked through how to see the excess cash on its balance sheet when you separate the finance sub from the manufacturing company.  Toyota has $15-20 per share of excess cash on its balance sheet.  At the current price in the mid 60s I don’t really feel the need to know whether it is $15 or $18 per share.  The last annual report I thought high teens.  Its not easy to pinpoint, but its in that range.


So enterprise value we’re looking at about $50 per share.  The company earned  over $10 per share last year, estimates are for $7 or 8 this year which I don’t believe.  I’d call it $6 per share.    That’s 8-9x depressed earnings and below tangible book value for a company the quality of Toyota.


A 700 FICO score customer can’t get a loan now to buy a car.  The Japanese market is in free fall.  I get it - the car market is the worst its been in decades right now and there is no reason to believe it gets better tomorrow.  That is giving us a wonderful chance to buy one of the highest quality manufacturing companies in the world at a single digit P/E on down earnings and below tangible book value.


How many honest to God AAA credits are left and do you think that might be a competitive advantage against GM, Ford and Chrysler?  Toyota is a AAA credit competing with these guys.  Toyota went to no interest financing in the U.S. a couple weeks ago.  They have the cost of borrowing to do that – GM and Ford don’t.  Toyota’s balance sheet is a HUGE competitive advantage in this environment.


none whatsoever - this is just way too good a company not to buy below tangible book value
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