We See A Lot To Like At Magna

9/2/2013


  Recent Price
$78
  Dividend
$1.28
  Yield
1.7%
  P/E Ratio
12
  Shares (millions)
233
  Long-Term Debt as % of Capital
1%
  52-Week Price Range
$82.58 - $42.33

Magna International ($78; MGA), the Canadian maker of automotive parts and systems, stands out in a surprisingly distinctive crowd.

Auto-parts companies in the S&P 1500 Index average Quadrix Overall scores of 68 and year-to-date returns of 27%. However, the only midcap or large-cap auto-parts maker that tops Magna's Overall score of 98 is another Forecasts favorite, Lear ($69; LEA). And while Magna shares have returned 57% so far this year, doubling the peer-group average, the stock's Value score of 76 is more than 20 points above the industry average.

Magna, a Focus List Buy and a Long-Term Buy, looks strong from a lot of angles.

Six reasons for optimism

Growth: In the 12 months ended June, sales rose 11% and cash from operations 39%. At first blush, per-share-profit growth of 8% isn't very impressive. But excluding noncash amortization expenses related to the acquisition of a controlling interest in E-Car last year, per-share profits jumped about 17%. Excluding the $0.50 per share in E-Car amortization costs expected in 2013, the consensus projects nearly 16% profit growth for the year, followed by 12% in 2014.

Value: At 13 times trailing earnings, Magna trades at a 17% discount to its five-year average P/E ratio and 32% below the industry median. The company enjoys similar discounts relative to its peers in price/sales, price/book, and price/operating cash flow ratios. A comparison of the P/E ratio based on current-year profit expectations (12.5) to the estimated long-term profit-growth rate (13%) yields a price/earnings-to-growth (PEG) ratio under 1.0, below the medians of 1.1 for the industry and 1.3 for the consumer-discretionary sector.

Price action: Magna's Performance score of 92 and its price gain of 51% since we added it to the Buy List Jan. 14 are tops among our recommended stocks. Concerned that the stock is getting stretched? See the previous bullet point.

Profit estimates: Magna topped profit estimates by more than 8% in the June quarter, the seventh consecutive quarterly surprise. Since posting the solid quarter and issuing optimistic guidance, Magna's 2013 per-share-profit consensus has risen $0.19 (3%), while the 2014 estimate has jumped $0.29 (4%).

Business outlook: In July, U.S. auto sales rose 14% from year-ago numbers. The Blue Chip Economic Indicators consensus projects U.S. sales of 15.5 million this year (up 8%) and 15.9 million next year (up 3%). The International Organization of Motor Vehicle Manufacturers expects global vehicle production to increase 3% this year, with growth in Asia offsetting European weakness. Last year, Magna generated 59% of its parts sales in North America, with 34% from Europe and 7% from the rest of the world.

Quadrix: Magna's Overall score of 98 ranks it near the top 2% of our research universe. The stock also earns scores of at least 90 in Momentum (recent operating results), Earnings Estimates (estimate-revision trends), Performance (stock-price action), and both sector-specific ranks.

An annual report for Magna International Inc. is available at 337 Magna Drive, Aurora, Ontario, L4G 7K1, (905) 726-2462, www.magna.com.  

MAGNA INTERNATIONAL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '13
1.78
vs.
1.48
16%
71.97
-
54.37
12 - 9
Mar '13
1.59
vs.
1.46
9%
58.80
-
50.77
10 - 8
Dec '12
1.49
vs.
1.32
11%
50.13
-
42.60
8 - 7
Sep '12
1.66
vs.
0.41
6%
47.27
-
36.96
10 - 8
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
30.84
6.09
1.10
50.13
-
33.32
8 - 5
2011
28.75
4.20
1.00
62.20
-
30.03
15 - 7
2010
24.10
4.18
0.42
52.98
-
25.58
13 - 6
2009
17.37
(2.21)
0.09
25.98
-
9.81
NM
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
98
90
76
88
56
91
92

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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