On Jan 24, we maintained our Neutral recommendation on
Magna International Inc.
) despite its significant acquisitions and expansion strategy and
improved third quarter 2012 earnings, as rising debt burden and
increasing raw material costs are headwinds for the company.
Magna reported adjusted earnings per share of $1.13 in the third
quarter of 2012, up 20.2% from 94 cents in the year-ago quarter.
The results topped the Zacks Consensus Estimate by 10 cents. The
year-over-year growth in earnings was aided by a decline in share
count stemming from repurchase and cancellation of common stocks
during the quarter.
Revenues climbed 6.3% year over year to $7.4 billion, exceeding
the Zacks Consensus Estimate of $7 billion. The increase was
driven by improvement in North American and Rest of World
production sales and higher tooling, engineering and other sales,
partly offset by decline in sales in the European business and
Complete Vehicle Assembly segment.
Following the release of the third quarter results, the Zacks
Consensus Estimate for 2012 increased 2.2% to $5.22 per share.
However, the Zacks Consensus Estimate for 2013 decreased 2.9% to
$5.35 per share. The company retains a Zacks Rank #3 (Hold).
Magna has expanded its footprint globally through accretive
acquisitions and expansion strategy. The company has increased
its presence in China with the joint venture with Changshu
Automotive Trim Co. and Chery Tech.
It plans to expand in Europe with the acquisition of 4
die-casting operations of BDW Technologies. The company has also
strengthened its position in Germany with the acquisition of
assets of Vogelsitze GmbH, a Germany-based manufacturer of seats
for the bus and light train industries.
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The company will also see a favorable impact from the stricter
regulation of the U.S. government for emissions control. This
will increase the demand for auto parts and other fuel efficient
components for trucks.
However, the company faces challenges from rising raw material
prices. In addition, its is believed that by 2015, the global
automobile manufacturers will tend to import parts and other
valuable accessories from emerging markets which will be
challenging for the North American automotive components
Other Stocks to Consider
Commercial Vehicle Group Inc.
Strattec Security Corp
) with Zacks Rank #1 (Strong Buy) are performing well in the same
industry where Magna operates.