Magna Benefits From Program Launches, Currency Woes Persist

On Mar 27, we issued an updated research report on Magna International Inc. (NYSE:MGA) .

The leading manufacturer and supplier of automotive components saw a year-over-year increase in revenues and adjusted earnings in fourth-quarter 2018. Earnings and sales surpassed their respective Zacks Consensus Estimate. Despite a decline of 4% in global light-vehicle production, the company managed to deliver improved quarterly results.

All four segments contributed to Magna’s year-over-year organic sales outperformance. Out of the four segments, Seating and Complete Vehicles businesses’ sales growth of 15% and 43%, respectively, were the major drivers of the company’s sales in fourth-quarter 2018.

Magna International Inc. Price and Consensus

Magna focuses on innovation, technology and program launches for growth. It is focusing on growth of its light-weight thermoplastic liftgate modules as demand for crossovers and SUVs is rising. Also, Magna is also expanding business through collaborations and acquisitions.

Program launches, and change in production volume and other programs in the company’s seating unit led to sales of $1.44 billion in the Seating Systems segment in the last reported quarter. Further, vehicle manufacturing contracts of Jaguar’s I-Pace and E-Pace, and Mercedes G-Class aided Magna’s Complete Vehicle segment to generate quarterly sales of $1.69 billion.

Additionally, the Aurora, Canada-based company rewards shareholders through share repurchases and dividend payments. In fourth-quarter 2018, it returned $585 million to shareholders through the repurchase of 9.9 million shares for $479 million and $106 million in dividend payments.

However, high costs related to product launch, increased spending for electrification and autonomy, and operational inefficiencies affected Magna’s adjusted EBIT in the fourth quarter that declined 10% to $730 million. Further, weakening foreign currencies against strong U.S. dollar lowered the adjusted EBIT across most segments.

For the current year, the company expects revenues to be impacted by the disposition of the Fluid Pressure & Controls (“FP&C”) business and appreciating dollar. Also, General Motors Company’s Oshawa plant closure will hurt Magna’s North American business. The company projects total sales of $40.2-$42.4 billion and net income of $2.1-$2.3 billion in 2019. Last year, its sales were $40.8 billion while net income was $2.3 billion.

The Zacks Consensus Estimate for Magna’s earnings for 2019 has been revised 0.4% downward over the past 60 days.

Shares of Magna have underperformed the industry it belongs to over the past three months. Over the time frame, shares of the company have gained 5.9%, whereas the industry increased 13.6%.

Zacks Rank & Stocks to Consider

Magna currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader auto sector are Fox Factory Holdings Corporation (NASDAQ:FOXF) , Oshkosh Corporation (NYSE:OSK) and General Motors Company (NYSE:GM) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fox Factory has an expected long-term growth rate of 15.1%. Over the past three months, shares of the company have gained 16.7%.

Oshkosh has an expected long-term growth rate of 11.3%. Shares of the company have gained 19.3% over the past three months.

General Motors has an expected long-term growth rate of 8.9%. Shares of the company have gained 9.5% over the past three months.

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