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Magna (MGA) Hit by Rising Costs & Soft Vehicle Production

Zacks Equity Research

On Jul 8, we issued an updated research report on Magna International Inc. MGA

The Canada-based company engages in the manufacture and supply of complete automotive parts. It aims to advance, restructure and produce automotive systems, and components for sale to original equipment manufacturers (OEMs) of cars and light trucks. Magna’s operations are highly dependent on growth of auto sales in key markets. In the near term, the company expects to generate higher revenues in China, India, South America and Eastern Europe.

Higher launch costs stemming from new businesses along with excessive spending on electrification units are exerting pressure on revenues. The company expects the costs to increase in the remaining months of 2019 and 2020. This has compelled the company to trim its outlook.

Additionally, Magna witnessed softening vehicle production that is expected to persist throughout 2019. Also, worse-than-expected equity income from a joint venture in China adds to the company’s woes.

In the first quarter of 2019, Magna posted adjusted earnings per share of $1.63, which missed the Zacks Consensus Estimate of $1.73. Quarterly revenues declined 2% year over year to $10.6 billion. The downside was caused by a 7% decline in a global light-vehicle production. Adjusted EBIT of the company declined to $720 million from $875 million in the prior-year quarter.

However, the company aims for growth by focusing on innovation and technological development of program launches. These launches have driven the company’s top line.

In the past six months, Magna has underperformed the industry it belongs to. During the same time frame, the company’s shares have declined 5.2% against the industry’s rise of 9.2%.

Zacks Rank & Stocks to Consider

Magna carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the auto space are PACCAR Inc PCAR, CarMax, Inc KMX and AutoZone, Inc AZO, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PACCAR has an expected long-term growth rate of 8.4%. In the past six months, shares of the company have gained 20.5%.

CarMax has an expected long-term growth rate of 33.7%. In the past six months, shares of the company have rallied 36.3%.

AutoZone has an expected long-term growth rate of 39.5%. In the past six months, shares of the company have rallied improved 39.3%.

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