Magna is a one of the world’s largest and most diversified Tier 1 automotive components suppliers, active in 25 countries. The company also provides
complete vehicle assembly services through its subsidiary, Magna Steyr.
Substantial Q1/13 upside surprise, guidance increased MGA reported EPS of $1.57, ahead of our $1.44 and the consensus mean $1.44. Positive surprises versus our forecast were on European sales and margins. 2013 guidance was also modestly increased.
We boosted our near-term forecast slightly given the guidance and boosted our mid-term forecast more significantly to model better European margins (but consistent with management’s goals). EPS was also boosted by our assumption that all of MGA’s current 12 million share buy back will be utilized, per management’s commentary.
Solid EPS growth expected
MGA produced 18% EPS growth in 2012 from strong North American sales and improved European margins. We forecast annual EPS growth
to slow to high single-digit to low double-digit rates through mid-decade from expectations of slowing industry growth in North America,
eventual gradual recovery in Europe, and modest margin expansion. Solid upside, with additional potential
We continue to recommend BUYing MGA for solid EPS growth, modest multiple expansion, and the potential for additional value creation from
cash deployment and/or business streamlining.
We expect EPS growth from forecast low- to mid-single-digit sales growth, based on booked business and gradual margin improvements in
Europe and Rest of World (ROW) segments.
We have boosted our valuation 0.5x to a 5.5x EV/NTM EBITDA multiple, as we think there is increasing investor interest in consumer growth
cyclical stocks like MGA. Our valuation and target is supported by our $77.61 DCF analysis.
Our target was boosted nicely (17%) this quarter based on the forecast increase, benefit from our usual one-quarter valuation period roll forward,
and the valuation boost.
- Magna stock: When you want to own it (business.financialpost.com)
- How Auto Gains Are Driving Magna International’s Success (dailyfinance.com)