Toyota Motor Corporation TM, one of the leading automakers in the world in terms of sales and production, is struggling with rising operating expenses and capital requirements.
Let’s see why you should consider offloading this Zacks Rank #5 (Strong Sell) stock from your portfolio.
Rising Operating Expenses and High Debt to Ail Toyota
Toyota’s operating income for fiscal 2026 is projected to be ¥3.2 trillion, indicating a contraction of 33.2% year over year. Material prices, forex rate and tariffs imposed by the U.S. government on vehicle and vehicle parts imports, along with investment in human resources and growth areas, are expected to be a big hit on the operating profits in the current fiscal year. In fiscal 2026, Toyota plans to spend a total of over 1 trillion yen on these. Pretax profit is estimated to be ¥3.87 trillion, implying a decline from ¥6.41 trillion generated in fiscal 2025.
High R&D expenses on advanced technologies and alternative fuels for the development of electric and autonomous vehicles bode well for the future but are likely to limit the near-term margins. For fiscal 2026, R&D costs are expected to be ¥1.37 trillion, implying an uptick from ¥1.33 trillion recorded in fiscal 2024.
Capital expenditure for fiscal 2026 is expected to flare up from 2.13 trillion yen to 2.3 trillion yen. While such massive spending might boost long-term prospects, near-term cash flows could be under pressure.
Toyota's rising debt levels play spoilsport. Long-term debt was ¥22.94 trillion as of June 30, 2025, up from ¥22.19 trillion as of June 30, 2024. Toyota's debt-to-capitalization stands at 38% versus the industry’s 28%.
The Zacks Consensus Estimate for TM’s fiscal 2026 earnings indicates year-over-year growth of 23.9%. EPS estimates for fiscal 2026 and 2027 have declined 2 cents and 3 cents, respectively, in the past 30 days.
Stocks to Consider
Some better-ranked stocks in the auto space are China Yuchai International Limited CYD, Modine Manufacturing Company MOD and Blue Bird Corporation BLBD, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for CYD’s 2025 sales and earnings indicates year-over-year growth of 54.1% and 87.7%, respectively. EPS estimates for 2025 have improved 58 cents in the past 30 days.
The Zacks Consensus Estimate for MOD’s fiscal 2026 sales and earnings implies year-over-year growth of 11.3% and 14.3%, respectively. EPS estimates for fiscal 2026 and 2027 have improved 11 cents and 46 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BLBD’s 2025 sales and earnings indicates year-over-year growth of 7.7% and 16.8%, respectively. EPS estimates for 2025 have improved 30 cents in the past 30 days.
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Toyota Motor Corporation (TM): Free Stock Analysis Report Modine Manufacturing Company (MOD): Free Stock Analysis Report Blue Bird Corporation (BLBD): Free Stock Analysis Report China Yuchai International Limited (CYD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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