Magna International Inc. is closing in on a 14 per cent gain this year, which isn't bad for four trading days. The gains come after strong U.S. auto sales last month, which beat expectations. Now, analysts are moving up their target prices on Magna.
Citigroup raised its target to $67 (U.S.) from $57. And Royal Bank of Canada analyst Steve Arthur raised his target to $71 from $56.
Part of Mr. Arthur's revision is due to expectations that the stock will trade at a higher valuation. His recent target was derived based on the stock trading at five-times earnings before interest, taxes, depreciation and amortization. Now, though, he believes that a valuation of six-times EBITDA is more appropriate, given the auto parts industry's healthier backdrop.
"We believe the increase is easily warranted given improving industry fundamentals, strong execution and higher peer valuation levels," he said in a note. He maintained an "outperform" recommendation on the stock.
Meanwhile, keep January 12 free. Mr. Arthur pointed out that Magna is expected to update its 2011 outlook in conjunction with the Detroit Auto Show.
David Berman