Alliances With Renault, Mitsubishi, And Honda Will Boost Efficiency And Market Access

Key Takeaways

• Nissan's strategic alliances and organizational changes are likely to boost operational efficiency and improve net margins via cost-sharing and streamlined decision-making.
  
• Investment in new energy vehicles and market-specific technologies aims to increase revenues by expanding into growing segments like China and the U.S.
  
• Intensifying competition and cost pressures are harming Nissan's sales, profitability, and projections, leading to restructuring efforts and future earnings uncertainties.

Catalysts

Manufactures and sells vehicles and automotive parts worldwide.

• Nissan's turnaround plan includes rightsizing their organization and transforming the profit structure, aiming for operational efficiency even with a reduced sales forecast. This could lead to improved net margins by reducing fixed costs by ¥300 billion and variable expenses by ¥100 billion.
  
• Strategic partnerships with companies such as Renault, Mitsubishi Motors, and Honda are being promoted to enhance product competitiveness and efficiency, potentially boosting future earnings by sharing development costs and accessing new markets.
  
• The introduction of a Chief Performance Officer and changes in the leadership roles aim to streamline decision-making and improve responsiveness to market changes, likely enhancing operational efficiency and positively impacting earnings.
  
• Expansion of new energy vehicles and plug-in hybrid technology in key markets like China and the U.S. could increase revenues through access to growing segments in these regions.
  
• Tight controls on marketing and SG&A expenses and reprioritizing CapEx and R&D investments are measures intended to stabilize cash flow and improve profitability, particularly in challenging market environments.

Nissan Motor Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Nissan Motor's revenue will grow by 2.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.2% today to 2.0% in 3 years time.
• Analysts expect earnings to reach ¥276.2 billion (and earnings per share of ¥78.27) by about December 2027, up from ¥149.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ¥421.0 billion in earnings, and the most bearish expecting ¥37.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.1x on those 2027 earnings, down from 8.9x today. This future PE is lower than the current PE for the JP Auto industry at 21.6x.
• Analysts expect the number of shares outstanding to decline by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.27%, as per the Simply Wall St company report.

Nissan Motor Future Earnings Per Share Growth

Risks

• Intensifying competition in the Chinese market, particularly from local brands rapidly increasing their market share with new energy vehicles, is diminishing Nissan's sales and impacting overall revenue growth.
  
• The decline in North America's core models' profitability, due to heightened competition in hybrid and plug-in hybrid vehicles where Nissan does not have a strong presence, leads to increased incentives and reduced margins.
  
• Nissan's inability to meet its sales plans has resulted in rising fixed costs and variable expenses, contributing to negative impacts on profitability and operating margins.
  
• Currency and raw material cost fluctuations continue to negatively affect operating profit, creating uncertainties in earnings projections.
  
• Planned reductions in global production capacity and workforce indicate a response to lower sales projections, potentially leading to restructuring costs and affecting future earnings stability.

Valuation

• The analysts have a consensus price target of ¥417.33 for Nissan Motor based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ¥700.0, and the most bearish reporting a price target of just ¥250.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ¥13593.4 billion, earnings will come to ¥276.2 billion, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 10.3%.
• Given the current share price of ¥364.9, the analyst's price target of ¥417.33 is 12.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.