Magna International - Value

The automobile market is recovering strongly worldwide from its near death experience during the Great Recession. Magna International Inc. (MGA) is cashing in as sales rose 27% in the third quarter. With sales booming, the company recently raised its dividend by 20%.

Magna International is not a small player in the auto market. The Canadian company has 245 manufacturing operations in 25 countries.

It designs and makes automotive interior systems, seats, closure systems, vision systems, roof systems and hybrid and electric vehicle systems for original equipment manufacturers ("OEMs") of cars and light trucks.

Third Quarter Sales Jump 27% and 9-Month Sales Rise 47%

On Nov 4, Magna reported its third quarter results and saw earnings per share jump 358% to $2.06 from 45 cents per share in the third quarter of 2009.

For the first 9 months, Magna made $6.61 compared to a loss of $3.17 in 2009. Talk about a turnaround!

Sales rose 27% in the quarter to $5.9 billion despite historically low levels of vehicle production in North America and Western Europe, its two primary markets.

The quarter was boosted due to higher sales in North American, European and the Rest of the World production sales, a 21% rise in complete vehicle assembly sales and an increase in tooling, engineering and other sales.

For the first 9 months, sales jumped 47% to $17.5 billion from $11.9 billion. There was a 24% increase in vehicle assembly sales during that period.

Dividend Increased

During the Great Recession, Magna slashed its dividend. But now that business is turning around, the company has been slowing raising it.

On Nov 4, the company announced it was raising the dividend another 20% to 18 cents per share. That is a yield of 1.8%.

Zacks Consensus Estimates Rise

Magna expects its full year sales to be between $23.5 billion and $24 billion based on 2010 light vehicle production volumes of about 11.8 million units in North America and 12.6 million units in Europe.

The analysts are bullish as they have been revising full year estimates higher well after the third quarter earnings report. The Zacks Consensus Estimate for 2010 has risen 13 cents to $4.28 in the last 30 days as 5 estimates have moved higher in that time.

That is earnings growth of 420% as the company lost $1.34 in 2009.

Growth is expected to slow in 2011, but analysts still see earnings climbing another 9.4% to $4.68 per share. 7 estimates have been revised higher in the last 30 days.

Magna Is a Value Stock

Despite its share price surging in the past 2 years to new 5-year highs, there is still value in Magna's shares.

The company trades with a forward P/E of just 11.8, well under the S&P 500 of 15.3 and under its peers at 12.3.

Magna has a price-to-book ratio of 1.6, whereas its peers trade at 2.4x.

Magna is a Zacks #1 Rank (strong buy) stock.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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