Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Is Magna International (TSX:MG) a Good Buy at These Levels?

Stock MarketsNov 25, 2021 17:45
Saved. See Saved Items.
This article has already been saved in your Saved Items
Is Magna International (TSX:MG) a Good Buy at These Levels?

This year has been good for Canadian investors, as the S&P/TSX Composite Index is trading 23.6% higher to date. However, Magna International (TSX:MG)(NYSE:MGA) has underperformed the broader equity markets by delivering returns of only 16%. The decline in auto production due to semiconductor chip shortages has weighed on its financials and stock price. So, let’s assess whether Magna International would be an excellent buy right now. First, let’s look at its performance in the recently reported third quarter.

Magna International’s weak third-quarter performance During the third quarter, Magna International’s top line declined by 13% on a year-over-year basis to US$7.92 billion. Amid the challenging environment this year due to the decline in vehicle production, the better comparison would be a quarter-over-quarter one. Sequentially, its sales have declined by 12% due to a negative product mix in North America and Europe, unfavourable currency exchange, and disinvestment in three of its exteriors’ facilities.

Along with weaker sales, the unpredictable production schedules, higher input costs, such as freight and commodities, and US$45 million provisions for its investment with Evergrande have also weighed on its margins, dragging its EBIT margin down to 2.9% from 6.2% in the previous quarter. Meanwhile, the company generated an adjusted EBIT of US$229 million, representing a significant decline from US$557 million in the second quarter. However, the company ended the quarter with its liquidity standing at a solid US$6.2 billion. So, it is well equipped to fund its growth initiatives.

Magna International’s growth prospects With the expectation of chip shortage continuing to hit vehicle production, Magna International’s management expects light vehicle production to fall this year. The management projects a year-over-year decline of 7%, 9%, and 7% in North America, Europe, and China, respectively. In alignment with its lower production, the management has also slashed its sales and EBIT guidance for this year. The management expects its revenue to be US$35.4 billion to US$36.4 billion, while its adjusted EBIT margin could fall between 5.1% to 5.4%.

Despite its near-term challenges, I am bullish on Magna International due to its healthy long-term growth prospects, as it has significant exposure to the growing EV market. In July, the company established a joint venture with LG Electronics to strengthen its position in the global electric powertrain market as the demand for e-motors, inverters, and electric drive systems could witness substantial growth over the next few years.

Also, through its Mezzo Panel technology, Magna International is reimagining the face and functionality of electric vehicles. The technology offers an excellent opportunity for designers and engineers to integrate advanced driver-assistance systems (ADAS). Its ICON Digital Radar could also strengthen its position in the ADAS market.

Meanwhile, the ADAS market could grow at a CAGR of 20% from 2021 to 2023 and 15-20% after that until 2027. With its innovative products, Magna International is well equipped to benefit from the growing ADAS market.

Bottom line Despite its healthy growth prospects, Magna International is trading at an attractive valuation. Its forward price-to-sales ratio and forward price-to-earnings ratio stand at 0.7 and 14.5, respectively. It also pays a quarterly dividend of US$0.43 per share, with its forward yield standing at 2.08%. So, considering all the factors mentioned above, I expect Magna International to outperform the market over the next three years.

The post Is Magna International (TSX:MG) a Good Buy at These Levels? appeared first on The Motley Fool Canada.

The Motley Fool recommends Magna Int’l. Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned.

This Article Was First Published on The Motley Fool

Is Magna International (TSX:MG) a Good Buy at These Levels?

Related Articles

Is Lightspeed (TSX:LSPD) Stock Price Still a Buy?
Is Lightspeed (TSX:LSPD) Stock Price Still a Buy? By The Motley Fool - Dec 05, 2021

Lightspeed Commerce (TSX:TSX:LSPD)(NYSE:LSPD) stock has been in a downward spiral for months. Currently trading for $64, it’s down 59% from its all-time high. The...

Could This Retail Stock Become a Tech Stock?
Could This Retail Stock Become a Tech Stock? By The Motley Fool - Dec 05, 2021

The line between retail and technology has been blurring for years. Nearly everything you can buy in a store is now also available online on the store’s website. This is...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email