Stock Spotlight

Momentum drives Magna into 2015

Recent Price
$96
Dividend (estimated)
$1.52e
Yield (estimated)
1.6%e
P/E Ratio
11
Shares (millions)
214
Long-Term Debt as % of Capital
8%
52-Week Price Range
$114.48 - $81.72

The U.S. car industry enters 2015 with five straight years of sales growth. Magna International ($96; MGA) has benefited from that run, with its per-share profits, revenue, and operating cash flow at record highs.

Magna builds chassis and powertrain systems, supplies other exterior and interior parts, and in some cases assembles entire vehicles. The stock has more than doubled since being added to our Focus List in January 2013. The stock is a Focus List Buy and a Long-Term Buy.

Geared up for more gains

Magna shares surged 32% in 2014 alone and appear positioned to rise further in the year ahead for the following reasons:

• Expectations for auto sales could prove conservative, given the recent plunge in fuel prices. Industry researcher Kelley Blue Book sees U.S. auto sales growing about 2% to 16.9 million vehicles in 2015. However, automakers posted stronger-than-expected U.S. results in December, and the continuation of low gasoline prices could stoke more driving activity and car sales in the coming year. North America generates about half of Magna's revenue.

• Magna's customer base is fairly balanced, with General Motors ($33; GM), Fiat ($13; FCAU), BMW, Ford Motor ($15; F), Volkswagen ($46; VLKAY), and Daimler each representing 10% to 20% of revenue. This diversity limits Magna's exposure to company-specific problems. Both Ford and Daimler issued disappointing guidance in the final four months of 2014. Yet in November, Magna raised its 2014 guidance for vehicle production in both North America and Europe.

• Magna offers a blend of growth prospects and valuation superior to that of many of auto parts and equipment stocks in the S&P 1500 Index. For the 12 months ending September 2015, analysts expect Magna's per-share profits to rise 11%, compared to a peer-group average of 10%. Yet Magna shares trade at just 11 times estimated earnings, while its peer group averages a forward P/E ratio of 16.

• Magna uses strong cash-flow trends to reward shareholders. Free cash flow surged 61% to $636 million in the nine months ended September, yet net cash dropped 70% to $360 million during that period. In November, Magna said it would keep reducing cash on the balance sheet in 2015. The company has approved the repurchase of at least 20 million shares through November 2015, more than 9% of outstanding shares.

Since the beginning of 2013, stock buybacks have reduced the share count 9%, with shares costing an average of $87. Magna also tends to raise its quarterly dividend when announcing December-quarter results, typically in late February or early March. Although the dividend has risen at an annualized rate of 15% over the past three years, Magna's payout ratio remains quite modest at 17% of earnings.

Magna will likely give its 2015 guidance later this month. An annual report for Magna International Inc. is available at 337 Magna Drive, Aurora, Ontario, Canada L4G 7K1, (905) 726-2462, www.magna.com.


 

Magna International

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Sep '14
$2.22
vs.
$1.53
6%
$114.48
-
$94.24
14 - 12
Jun '14
2.37
vs.
1.78
6%
109.15
-
93.30
15 - 13
Mar '14
1.99
vs.
1.59
7%
98.25
-
79.92
14 - 11
Dec '13
2.08
vs.
1.29
14%
88.76
-
75.76
14 - 12

 
Year (Dec.)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2013
$34.84
$6.98
$1.28e
$88.76
-
$50.77
13 - 7
2012
30.84
5.37
1.10e
50.13
-
33.32
9 - 6
2011
28.75
4.53
1.00e
62.20
-
30.03
14 - 7
2010
24.10
4.32
0.42e
52.98
-
25.58
12 - 6

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
93
71
94
95
58
22
29

* Earnings exclude special items. NM Not Meaningful.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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Wednesday, January 28, 2015

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Stock Spotlight

Momentum drives Magna into 2015

Wednesday, January 28, 2015

The U.S. car industry enters 2015 with five straight years of sales growth. Magna International ($96; MGA) has benefited from...

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