Magna International Inc.
) generated robust earnings growth of 28.7% in the second quarter,
driven by strong growth in North American vehicle production.
Earnings estimates have advanced since the report, helping this
supplier of automotive components reach a Zacks #2 Rank (Buy) on
September 18. The company is expected to deliver double-digit
earnings growth in 2012. It also offers a dividend yield of 2.4%.
Challenging but Promising Second Quarter
On August 9, Magna International announced second quarter 2012
earnings of $1.48 per share, which topped the Zacks Consensus
Estimate by more than 15.6%. This marked its third straight
The earnings improvement was attributable to higher production and
sales in North America, which more than offset the impact of
challenges in Western Europe. Furthermore, a drop in share count,
stemming from repurchases and cancellation of common shares, also
led to higher earnings.
Revenues grew 5% to $7.7 million and exceeded the Zacks Consensus
Estimate of $7.5 billion. The increase was attributable to higher
external production sales in North America and Rest of World, as
well as an increase in Tooling, Engineering and Other sales.
For 2012, Magna expects revenues between $29.0 billion and $30.5
billion, compared with $28.7 billion in the prior year. The revenue
growth will be driven mainly by higher external production sales
between $24.6 billion and $25.7 billion, compared with $24.0
billion in 2011. Meanwhile, operating margin is expected within 5%
for the year compared with 4.2% in 2011.
Earnings Estimates Moving Higher
Over the last 60 days, the Zacks Consensus Estimate for 2012 moved
up 4.3% to $5.10, while the Zacks Consensus Estimate for 2013
advanced 2.4% to $5.57. The estimates for 2012 and 2013 represent
year-over-year growth of 13.6% and 9.2%, respectively
Dividend Indicates Strength
Magna follows a continuous dividend payment policy. The company
lowered its dividend payment by 50% to 9 cents per share in late
2008 following the global economic crisis. However, it started
raising its dividend from the second half of 2010. In 2012, the
company raised its dividend payments by 10%. On September 14, it
paid the last quarterly dividend of 27.5 cents per share,
representing a yield of 2.4%.
Magna is currently trading at a forward P/E of 9.0x, which is in
line with the peer group average. On a price-to-book basis, the
company is trading at 1.2x, lower than the peer group average of
1.7x. The company has a PEG ratio of 0.91, which indicates that the
stock is undervalued given the long-term earnings growth projection
Chart Shows Strength
The price and consensus chart shows that estimate lines are mostly
hovering above the stock from a year ago, indicating that the stock
is undervalued and has significant opportunities for growth. It
reached its 52-week high of $49.60 on March 2.
Despite weaknesses in Europe, Magna is likely to continue
outgrowing its peers, primarily driven by strong vehicle production
growth in North America. Furthermore, with stable earnings
estimates, a solid dividend yield and a reasonable valuation, the
stock is definitely a good choice for investors seeking both growth
Incorporated in 1969, Magna International is based in Aurora,
Canada. The $10.8 billion company designs, develops and
manufactures automotive systems, assemblies, modules and
components, in addition to engineering and assembling complete
vehicles, primarily for sale to original equipment manufacturers of
cars and light trucks. It operates 296 manufacturing operations and
88 product development, engineering and sales centers in 26
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