On May 27, we maintained our Neutral recommendation on Magna International Inc. (MGA) based on its improved first quarter 2013 performance, increased customer preferences for light passenger vehicles and stricter regulation by U.S. government. However, we are concerned about the negative impact associated with the import of parts from low-cost countries and rising raw material costs.
On May 10, Magna reported earnings per share of $1.57 in the first quarter of 2013, up 7.5% from $1.46 in the year-ago quarter and outpaced the Zacks Consensus Estimate of $1.40. Net income increased 7.6% to $369.0 million from $343.0 million in the year-ago quarter.
Revenues went up 9.1% to $8.4 billion in the reported quarter, exceeding the Zacks Consensus Estimate of $7.9 billion. The increase was driven by improvement in North American and Rest of World (:ROW) production sales and higher tooling, engineering and other sales.
Following the release of the first quarter results, the Zacks Consensus Estimate for 2013 went up 4.8% to $5.88 per share and for 2014 it improved 5.9% to $6.99 per share.
Magna will benefit from the increased customer preferences for light passenger vehicles. In addition, the strict U.S. government regulation to curb emissions will boost the demand for auto parts and other fuel efficient components.
However, import of parts and other valuable accessories from low-cost countries like India, China, Brazil, Japan and other ASEAN countries will mar the results of the company. In addition, rising raw material costs will be challenging for auto parts and accessories manufacturers such as Magna.
Other Stocks to Look For
Some stocks that are performing well in the industry include Tower International, Inc. (TOWR), Federal-Mogul Corp. (FDML) and Visteon Corp. (VC). All these companies carry a Zacks Rank #1 (Strong Buy).
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