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Why Magna International Stock Is Higher Today

What happened

Shares of auto-industry supplier Magna International (NYSE: MGA) were trading higher on Friday, after the company reported fourth-quarter earnings that beat Wall Street's expectations.

As of 1:15 p.m. EST, Magna's shares were up about 10.2% from Thursday's closing price.

So what

Magna reported fourth-quarter and full-year 2020 earnings before the U.S. markets opened on Friday, and they were good: Net income was up 68% from a tough year-ago quarter, to $738 million, and adjusted earnings per share ($2.83) and revenue ($10.12 billion) both beat Wall Street's estimates.

Like most of its peers and most of the global automakers, Magna had a challenging first half of 2020. The company had to idle and then restart over 300 factories worldwide amid the COVID-19 pandemic, and its own sales were hurt further as automakers cut their pre-pandemic production plans with sales uncertain.

An orange Fisker Ocean, a sleek electric SUV, parked on a beach.

Magna continued to make headway into the electric space in the fourth quarter, with a deal to build Fisker's Ocean electric SUV. Image source: Fisker.

The good news is that the second half of the year, and the fourth quarter in particular, were a lot better. Better-than-expected global auto production was the main reason that Magna beat expectations in the fourth quarter; a successful cost-reduction effort also helped.

Magna also had some nice wins in the quarter, including a deal to build electric-vehicle start-up Fisker's (NYSE: FSR) upcoming new SUV under contract. It also entered into a new joint venture with Korean giant LG Electronics that will manufacture a series of electric-vehicle components for global automakers.

That's why the stock is up today.

Now what

Magna's 2021 guidance was also good. It said that auto investors should expect:

  • Revenue between $40 billion and $41.6 billion. (2020: $32.65 billion.)
  • Adjusted EBIT margin between 7.1% and 7.5%. (2020: 5.1%.)
  • Net income between $2.1 billion and $2.3 billion. (2020: $757 million.)
  • Capital spending of about $1.6 billion. (2020: $1.1 billion.)

("Adjusted EBIT" is earnings before interest and tax, or EBIT, "adjusted" to exclude one-time items.)

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John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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