Honda (NYSE: HMC) shows off its cool confidence with plan to increase share buybacks

Amid concerns about a possible slowdown in the global auto industry, Honda (NYSE: HMC) is signaling confidence in its longer-term prospects with a record plan to buy back its own shares even as it expects both revenue and profit to fall in the coming year. 

The Japanese automaker is planning to purchase up to 3.7% of its outstanding shares for as much as 300 billion yen ($1.9 billion) during its fiscal 2025 year. That’s an increase from the 250 billion yen it spent on buybacks during the previous year and should help support shares even as the industry grapples with rising costs and slowing excitement about a broader transition to electrified vehicles. 

Honda CEO Toshihiro Mibe said in an earnings call that the company considers shareholder returns to be “an issue of utmost importance” and aims to achieve a price-to-book-ratio over 1 in the “near future”. The metric – favored by value investors – is a measure of the company’s current market capitalization compared to the underlying value of its assets. With a current reading of just 0.69, Honda would need to see its shares surge more than 45% to get there. However, achieving that wouldn’t necessarily be a wild dream, as shares of competitors like Toyota (NYSE: TM) and Ford (NYSE: F) are already trading at a premium to their book values. 

Honda, along with other fellow Japanese automakers, has been slower in the rollout of an electrified fleet and instead has focused more on hybrid models, which Mibe said were selling well. He also said the enhancement of its motorcycle lineup in South America was further strengthening its business structure. The company noted record operating profit of nearly 1.3 trillion yen for its fiscal 2024 year, although it’s expecting overall profit to decline almost 10% next year amid increases in research and development spending and a stronger yen.

Honda’s shares have surged 21% over the past year, but the company’s plan for the record purchases of its own shares suggests there could still be even more upside. While buybacks can signal that a mature company may be running out of things to do with growing piles of cash, companies wouldn’t buy their own shares if they didn’t think it was a good deal, and the move underscores a broader story of quiet confidence.