Toyota's Fiscal 2023 Third Quarter Gets Major Boost From Weaker Yen to the Dollar

Toyota’s fiscal 2023 third quarter had revenue grow 25.3% year over year and operating income rise by 22% but with a 30-basis-point margin decline to 9.8%. We are leaving our yen fair value estimate intact and raising our U.S. dollar fair value estimate by 9.6% to $172. The change is mostly the net impact of modeling a stronger yen against the dollar across our five-year explicit forecast period and then translating our yen model to dollars at a stronger yen than our prior valuation. We now model the average yen to dollar exchange rate over our five-year forecast period at JPY 122.46 instead of JPY 132.74 and translate our yen fair value estimate to dollars at JPY 131.29 instead of JPY 148.19. Given the yen was recently at over 30-year lows against the dollar, further yen appreciation could occur at some point, but continued recent U.S. interest rate increases may keep the yen close to early February levels for fiscal fourth quarter. Management kept fiscal 2023 guidance unchanged from Nov. 1 and expects the average yen to dollar rate for fiscal 2023 to be JPY 134 versus JPY 135.