On Dec 26, 2014, we issued an updated research report on Magna International Inc. (MGA). This Zacks Rank #2 (Buy) stock had reported a positive earnings surprise of 13.9% in the last quarter.
Magna International reported adjusted earnings per share of $2.22 in the third quarter of 2014, surpassing the Zacks Consensus Estimate of $1.95. Also, earnings improved 45.1% from $1.53 in the third quarter of 2013. Revenues went up 5.8% to $8.82 billion in the reported quarter, in line with the Zacks Consensus Estimate. The year-over-year increase came on the back of increased production sales in North America and Asia, tooling, engineering and other sales, and complete vehicle assembly sales.
For 2014, the company’s total revenue is projected between $35.8 billion and $37 billion. For 2016, Magna International expects total production sales to be about $3.6 billion. This encouraging guidance is based on the assumption that light vehicle production volumes will climb to 17.7 million units in North America and approximately 20.9 million units in Europe in 2016.
The company’s strong cash position facilitates regular capital deployment which helps to enhance shareholder value. In the first nine months of 2014, Magna International repurchased shares worth $1.43 billion. The company also announced the cancellation of 14.1 million shares under the normal course issuer bid in the first nine months of 2014. Subsequent to the end of third-quarter 2014, the company repurchased an additional 1.1 million shares for $98 million. In addition, the Board of Directors of Magna International has approved a new repurchase program of up to 20 million shares. This represents around 9.8% of the public float of shares.
However, dependence on a few customers is challenging for the company. Moreover, any rise in raw material costs will pose considerable threat to auto parts and accessories manufacturers, including Magna International.
Key Picks from the Sector
Investors interested in the auto industry could consider better-ranked stocks like Dana Holding Corporation (DAN), Meritor, Inc. (MTOR) and Tower International, Inc. (TOWR), all sporting a Zacks Rank #1 (Strong Buy).
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