No Red Lights As Magna Cruises

6/2/2014


  Recent Price
$103
  Dividend
$1.52 e
  Yield
1.5% e
  P/E Ratio
14
  Shares (millions)
224
  Long-Term Debt as % of Capital
1%
  52-Week Price Range
$103.20 - $64.57
  e Dividend and yield estimated.

Magna International ($103; MGA) is riding a hot streak, but we still see open road ahead. The stock has surged 97% since we added it to the Focus List in January 2013, ahead of the S&P 1500 Index's 28% advance. Magna shares have risen 25% so far this year, compared to the index's 3% gain.

Yet the stock does not look overextended. At 14 times trailing earnings, Magna shares trade 12% below their own five-year average of 16 and 26% below the median for S&P 1500 auto-parts stocks. If Magna's P/E ratio rises to 15 — still 5% below the five-year norm — and the company meets the 2014 consensus profit estimate of $8.25 per share, the stock will advance 20% by early next year. Magna, yielding 1.5%, is a Focus List Buy and a Long-Term Buy.

Steady as she goes

Magna builds automotive systems for most major car manufacturers. Despite operating in a highly cyclical industry, Magna's Quadrix® scores have been remarkably stable.

Its Overall rank, currently 99, has topped 90 in each of the past 72 weeks. That boosts our confidence for two reasons. First, stocks with super-high Overall scores tend to outperform stocks with merely high scores. Second, stocks that consistently earn high Overall scores tend to generate stronger returns than stocks prone to large swings in the score.

Over the past 72 weeks, a stretch dating back to Jan. 9, 2013, Magna's Quality rank has exceeded 80, while the Momentum and Value scores seldom fell below 75. Even the historically volatile Earnings Estimates score has topped 75 in 85% of those weeks. Magna's Momentum, Value, and Earnings Estimates scores currently exceed 80 — just 2% of S&P 1500 stocks can claim the same.

Onward and upward

Magna's consistency in Quadrix reflects the stability of the company's operating growth:

• Cash from operations and free cash flow rose in eight of the past nine quarters.

• Operating profit margins expanded in 10 straight quarters.

• Revenue advanced at least 5% in 18 straight quarters.

• Per-share profits topped the consensus estimate in 10 consecutive quarters.

Europe (42% of Magna's sales for the 12 months ended March) is turning around, with sales growing at double-digit rates in four of the last five quarters. Europe's operating profit margins have long lagged other regions, but they are starting to improve, reaching 2.5% in 2013 after 1.3% in 2012. European margins rose to 3.4% in the March quarter and seem on track to reach management's 2016 target of 4.25% to 4.75%.

The company has maintained its momentum in North America, representing 51% of sales for the 12 months ended March. Sales rose 8% for the region in the March quarter, following 10% growth in both 2012 and 2013.

Rising analyst estimates project 24% higher per-share profits for the June quarter and 14% growth for the year. An annual report for Magna International Inc. is available at 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1, (905) 726-2462, www.magna.com.

MAGNA INTERNATIONAL
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '14
1.99
vs.
1.59
7%
98.25
-
79.92
14 - 11
Dec '13
2.08
vs.
1.29
14%
88.76
-
75.76
14 - 12
Sep '13
1.53
vs.
1.13
13%
85.07
-
71.29
15 - 12
Jun '13
1.78
vs.
1.48
16%
71.97
-
54.37
13 - 10
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2013
34.84
6.98
1.28
88.76
-
50.77
13 - 7
2012
30.84
5.36
1.10
50.13
-
33.32
9 - 6
2011
28.75
4.53
1.00
62.20
-
30.03
14 - 7
2010
24.10
4.37
0.42
52.98
-
25.58
12 - 6
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
92
84
93
63
96
91

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


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