We have upgraded our long-term recommendation on
Magna International Inc.
) to Outperform from Neutral. The company is likely to reap
benefits from the new emission standard in the U.S., which will
boost demand for new auto parts and other components.
The company's first quarter 2012 earnings per share of $1.46,
surpassed the Zacks Consensus Estimate and a year-ago earnings of
$1.30 by 12%. The earnings escalated owing to higher production and
sales volumes along with profits generated from programs launched
Revenues swelled 7% year over year to $7.7 billion, beating the
Zacks Consensus Estimate of $7.4 billion. The increase in revenues
was driven by an increase in production and sales in North America,
Europe and in the Rest of the World.
Magna is extending its global footprint through significant
acquisitions and expansions in recent times. The company, in order
to pursue growth opportunities in emerging markets, has entered
into a joint venture; MCC Wuhu Exteriors, with Changshu Automotive
Trim Co. (34%) and Chery Tech. (15%) along with exterior and
interior operating unit (51%)
in China. It also acquired a 300,000-square-foot injection molding
and painting facility in China.
In the month of January, Magna acquired the assets and business
of Vogelsitze GmbH. This acquisition will strengthen the position
of the company in the German markets and improve its product
portfolio. With this, Magna will be gaining the customer base of
Vogelsitze. The major customers include MAN,
) Mercedes-Benz, Volvo, Bombardier, VDL and GAZ.
There will be a rise in demand for auto parts and other fuel
efficient components for trucks due to the regulation of the U.S
government. This new emission standard will boost the revenues and
earnings of the company.
Magna anticipates that there would be an increase in total
production sales of $3.2 billion during 2012 to 2014. Production
volumes will be enhanced to 15.4 million in North America and 14.2
million in Western Europe in 2014. There would be nearly 50% net
increase in total production sales in North America, 15% in Europe
and 35% in the Rest of the World.
The company has more capital to invest in new facilities and can
undertake business expansion plans using the $2.25 billion
four-year revolving credit facility. This new credit facility
replaced the company's previous $2.0 billion revolving credit
facility, which was due on July 31, 2012.
However, rising raw material prices impart a continuous threat
to the company. The prices of plastic resins, rubber, oil and steel
have swelled over the years, driven by an increase in global
In addition, emerging markets of India, China, Brazil, Japan and
other ASEAN countries only intensify competition for the North
American component industry. Global automobile manufacturers are
likely to import parts and accessories from the low cost countries
from 2015 onwards.
Magna International, based in Aurora, Canada, is a leading
manufacturer and supplier of automotive components. The company
designs, develops and manufactures automotive systems, assemblies,
modules and components, besides engineering and assembling complete
vehicles, primarily for sale to original equipment manufacturers
(OEMs) of cars and light trucks. It competes with
Dana Holding Corporation
Our long-term recommendation is backed by Zacks #1 Rank on the
stock, which translates into a short-term (1 to 3 months) Strong
DANA HOLDING CP (DAN): Free Stock Analysis
DAIMLER AG (DDAIF): Free Stock Analysis Report
LEAR CORPORATN (LEA): Free Stock Analysis
MAGNA INTL CL A (MGA): Free Stock Analysis
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