A Good Long Term Bet: Tata Motors Limited (TTM), Ford Motor Company (F), Toyota Motor Corporation (TM)

Financial Outlook

Tata Motor’s capital spending is likely to be about 2.75 billion pounds in 2013, compared to 2 billion pounds last year. The unfavorable exchange rate is yet another cause of worry. Tata also announced that in order to develop products, meet the tougher requirements of emission regulations, and to increase its capacity in China, it would spend $4.3 billion, which is $1.2 billion more than expected. Altogether the company’s cash flow is likely to be negative in 2014 and its EBITDA is expected to get cut by 7%-10% due to increased debts. To add to this, the analysts have also predicted that profits will fall by 10%, to $2.6 billion, i.e. $3.29 per American depositary share.

For Ford, total profits rose 15.6% to $1.6 billion from $1.4 billion a year ago.  As for Toyota, the consolidated revenue projection for fiscal 2013 reflects an expected increase of 17.3% from previous fiscal. The operating income guidance is expected to be up by 223.4% and net income by 203.3% for the fiscal year.

Bottom Line

Tata Motors, like many other automakers, made a comeback since the recession, with its stock showing a double-digit increase of 15%, whereas its competitor, Toyota, is up by 30%. And despite all setbacks, it is expected that Tata Motors within the next 18 months could narrow its gap with the likes of BMW and Daimler, offering 25% upside in the stock. Hence, Tata Motors may not be a safe short term bet, but definitely a very good long term bet. The short term trader should exit immediately, as the share price may fall down due to expected negative cash flows and reduced EBITDA. Regarding Toyota and Ford, both have shown great results. But, for the short term, both the companies retain a rating of Sell.

The article A Good Long Term Bet originally appeared on Fool.com and is written by Sheetal Gupta.

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