Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Magna International: A Classic Value Stock

Stock MarketsSep 23, 2021 05:00PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Magna International: A Classic Value Stock

Magna International Inc (NYSE:MGA) designs and manufactures auto parts for vehicles and light trucks worldwide.

The company operates through four segments: Body Exteriors & Structures, Power & Vision, Seating Systems, and Complete Vehicles. The company is cyclical, meaning it's sensitive to business cycles.

As a result, revenue and earnings tend to fluctuate with the economy. However, the company has produced solid returns for investors over the long run. Nonetheless, we remain neutral on the stock in the short-term. (See Magna stock charts on TipRanks).

Efficiency Analysis

Large companies such as Magna need to carry a lot of inventory in order to satisfy customer demand. Storing billions of dollars worth of inventory can be quite expensive.

Therefore, the speed at which a company can move inventory and convert it into cash is very important in predicting success. To measure Magna’s efficiency, we will use the cash conversion cycle, which shows how many days it takes to convert inventory into cash. It is calculated as follows:

CCC = Days Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding

39 = 42 + 55 - 58

Therefore, it takes 42 days for Magna to move inventory, and it's able to convert it into cash in 39 days. However, it is interesting to note that both days inventory outstanding and cash conversion cycle have been trending upwards the past 10 years.

Valuation

We consider Magna as an old school value play because it trades at a low multiple, and has a significant amount of tangible assets. As a result, we will value Magna using price to book value. At the time of this writing, the company's price to book value is 1.85. We want to figure out what the justified price to book value is. To do so, we will use the following formula:

Justified P/B = (ROE - Growth) / (Discount Rate - Growth)

For return on equity, we will use Magna's five-year average which is 17.4%.

The growth rate is the rate that the company will grow at "forever." A reasonable assumption is to set it to the expected nominal GDP growth, which we set to 3.52%. We arrived at this number by calculating the expected GDP growth rate in 2026 (the farthest out the forecast goes) that is forecasted by Statista.

For the discount rate, we will use 9.5%. The result is as follows:

Justified P/B = (0.174 - 0.0352) / (0.095 - 0.0352)

Justified P/B = 2.32

Therefore, Magna is currently undervalued.

Wall Street’s Take

Turning to Wall Street, Veeva has a Moderate Buy consensus rating, based on seven Buys, one Hold, and zero Sells assigned in the past three months. The average Magna price target of $109.83 implies 40.6% upside potential.

Final Thoughts

Magna International is a classic value stock that has the potential for a lot of upside. However, the stock is very volatile, with a beta of 1.55.

The stock has been on a downtrend since June, despite the fact that the overall market was in an uptrend for most of that time. With the overall market looking like it may be poised for a 10% correction from its peak, and Magna still on a downtrend, the stock may still see some more downside in the short-term.

Disclosure: At the time of publication, Stock Bros Research did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Magna International: A Classic Value Stock
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other 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, don’t trash it.

  •           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. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. 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 Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
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?
 
Post
 
Replace the attached chart with a new chart ?
1000
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 Investing.com'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
or
Sign up with Email