Toyota overtakes Wal-Mart in value race CNN/Money February 17, 2006: 7:37 AM EST Japanese auto manufacturer's market capitalization exceeds $200 billion as share prices reach record high. TOKYO (Reuters) - Shares in Toyota Motor Corp. hit a record high Friday, sending the auto manufacturer's market value above $200 billion -- more than that of U.S. retail giant Wal-Mart Stores -- and analysts said the issue could keep rising as profits look to grow even faster next year. Climbing for the fourth session in five days, shares in Japan's top car maker touched an all-time peak of ¥6,560 in early trade, putting its market capitalization -- a measure of how much investors believe a company is worth -- at $200.7 billion at current exchange rates. Even at the closing share price of ¥6,420, Toyota's (Research) market cap of $196 billion would make it the world's ninth most valuable company, ahead of Wal-Mart (Research), whose market cap stood at $195 billion as of Thursday. "Fundamentally, there's nothing negative you can point to with Toyota," said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. "With the broader market and start-ups suffering right now, there's a flight to quality, and institutional and retail investors alike are looking for large-cap, blue-chip stocks that they feel are safe," he added. With an arsenal of popular cars and a lean cost structure, Toyota has long dwarfed rival auto manufacturers in terms of market capitalization. By this yardstick it is now worth more than double the combined value of DaimlerChrysler AG (Research), General Motors Corp. (Research) and Ford Motor Co. (Research) "Interest in Toyota is high, and we think there's plenty of upside for the shares," Deutsche Securities analyst Tsuyoshi Mochimaru wrote in a report last week. Mochimaru has a "buy" rating on Toyota, with a 12-month target price of ¥7,200. Profits turn higher For much of 2005, many analysts' view that Toyota's shares were undervalued went unheeded. The stock wavered around ¥4,000 for more than half the year as investors focused on Toyota's operating profits, which were dragged down by its heavy capital spending. But after three straight quarters of profit declines, Toyota last week posted a 14 percent jump in October-December operating profit as robust demand for its cars in North America, big cost cuts and a weaker yen helped absorb the cost of expanding its manufacturing facilities around the world. After the stellar results, Mizuho Securities also raised its target price for Toyota shares to ¥7,200, from ¥6,300. Analyst Yoshio Watanabe said the company's midterm prospects were solid given its leading position in industrialized countries thanks to a competitive product line and technological edge, through vehicles like the Prius hybrid sedan. He added that Toyota also stood to prosper rapidly in Asia and other emerging markets, having spent aggressively on manufacturing facilities to roll out more vehicles. Analysts predict the pace of Toyota's operating profit growth to pick up next business year after an expected rise of 5.5 percent this year. A survey of 21 brokerages put the firm's profit at ¥1.966 trillion ($16.7 billion) for the year to March 2007, up 11 percent from a consensus forecast for 2005-2006. While Toyota has said its capital spending is likely to stay high next year -- it has set aside a record ¥1.4 trillion for this year -- analysts expect a big enough boost to revenues from the new Camry sedan, Tundra pickup, IMV, Lexus LS and other strategic models to absorb any impact on its earnings. Many brokerages have a 12-month target above ¥7,000 for Toyota, but Nikko Citigroup analyst Noriyuki Matsushima reckons that is conservative. Based on a 2006-2007 price-to-cash flow ratio of 14 -- the midpoint between the historical and average five-year highs of the multiple -- Matsushima raised his target price for Toyota to ¥10,000 from ¥7,000 last week. "Not only do we consider Toyota highly cost-competitive in established areas, we believe it has also a strong lead over competitors in commercializing new technologies," he wrote in a report on Feb. 8. "Toyota's expansion of its global production network in Europe, North America, Asia and elsewhere is beginning to produce results, and we anticipate considerable earnings contributions in the coming years," he added. Hopes are also high that Toyota will raise its dividend to ¥85 per share in the year to March 31, up from ¥65 last year, and incrementally increase that towards ¥100 to bring its dividend payout ratio to its stated goal of 30 percent. Toyota's shares gained 1.58 percent Friday, while the main Nikkei average lost 2 percent. Toyota has added 4.9 percent so far this year, while the Nikkei has lost 2.5 percent.