A month has gone by since the last earnings report for Magna (MGA). Shares have added about 22.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Magna due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Magna Q1 Earnings Surpass Estimates, Down Y/Y
Magna reported adjusted first-quarter 2020 earnings per share of 86 cents, beating the Zacks Consensus Estimate of 74 cents. Higher-than-expected EBIT from the Complete Vehicles segment can be attributed to this outperformance. Precisely, EBIT from the unit came in at $50 million, topping the consensus mark of $36.3 million.
However, the bottom line declined from the year-ago quarter’s $1.63. Lower year-over-year revenues across all segments amid coronavirus woes led to the dismal results. The company’s total revenues declined 18.3% year over year to $8,657 million. However, the reported figure surpassed the Zacks Consensus Estimate of $7,971 million.
The Body Exteriors & Structures segment’s revenues dropped 14.6% year over year to $3,676 million in the reported quarter. Lower global light vehicle production amid the COVID-19 pandemic and unfavorable currency translations resulted in soft revenues. Adjusted EBIT declined to $199 million from the prior-year quarter’s $363 million owing to lower tooling contribution, weak scrap steel and aluminum recoveries, operational inefficiency, as well as reduced sales.
The Power & Vision segment revenues fell to $2,523 million from the prior-year figure of $3,083 million. In addition to the negative impacts from forex and coronavirus, divestiture of the FP&C business also affected revenues. Consequently, adjusted EBIT declined to $135 million from $216 million recorded in first-quarter 2019.
Revenues in the Seating Systems segment decreased to $1,261 million in the January-March quarter from the prior-year figure of $1,433 million due to bleak light vehicle production, unfavorable foreign-currency translation impact and net customer-price concessions. Adjusted EBIT also declined to $40 million from $94 million recorded in the prior year amid lower sales, higher launch costs and operational inefficiency.
The Complete Vehicles segment’s revenues were down 31.5% from the prior-year quarter to $1,321 million. Nonetheless, adjusted EBIT grew to $50 million from $28 million on the back of a favorable engineering program resolution in first-quarter 2020. Further, a favorable mix within the Mercedes-Benz G-Class complete vehicle assembly program also aided profits.
Magna had $1,146 million cash and cash equivalents as of Mar 31, 2020 compared with $1,276 million on Dec 31, 2019. It had a long-term debt of $3,021 million as of Mar 31, 2020, reflecting a decline from $3,062 million recorded on Dec 31, 2019. The long-term debt-to-capital ratio was 0.23. The company generated cash from operating activities of $639 million during first-quarter 2020.
Dividend & Buyback
During the March-end quarter, it repurchased 4.8 million shares of common stock for $192 million. During the quarter, the firm paid dividends of $121 million.
Magna’s board of directors announced a dividend of 40 cents per share for first-quarter 2020, payable on Jun 5 to shareholders of record on May 22.
However, amid coronavirus-led uncertainty and financial crisis, the company halted the stock buyback program until further notice. It also refrained from providing annual view for 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -184.6% due to these changes.
Currently, Magna has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Magna has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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