Magna International Inc.
Wednesday’s close: $51.21, up 29 cents
52-week trading range: $36.82 - $51.79 a share
Annual dividend: $1.085 a share for a yield of 2.1 per cent
Analyts ratings: There were 12 buys, 6 holds and 3 sells, according to Bloomberg data. Target prices ranged from $45.98 to $60.99 a share.
Recent history: Shares of the Canadian auto parts giant rode to a 52-week high on Wednesday as sales of cars and trucks in North America have continued their rebound. Including dividends, Magna’s stock has gained 42 per cent over the past year. Magna’s earnings have beat analysts’ expectations for four consecutive quarters, helped by a 13-per-cent increase in North American vehicle production to 14.5 million units last year from 2011. Magna’s stock still trades at a discount to its peers, but that has narrowed since 2010 after its founder Frank Stronach bought back his controversial multiple-vote controlling shares. He also stepped down from the company’s board last fall after resigning as chairman in 2011.
Outlook: Magna, which raised its dividend to a record high last year, is poised to boost its payout again this year. The dividend increase “could be a little more than what they did at the beginning of last year,” said Andy Nasr, a portfolio manager at Middlefield Capital Corp., which owns Magna in various income funds. “The company’s free cash flow profile is going to increase pretty substantially as a result of the operational improvements that they have undertaken.”
Magna’s shares should continue to gain ground with a rebounding U.S. economy and improving margins at its European operations that have been hurt by an economic slowdown, Mr. Nasr said. Demand for North American autos should continue to rise as a U.S. housing recovery boosts consumer confidence, while buyers will grow weary of driving vehicles that are over 10 years old on average, he added. “Its just an indication of pent-up demand.”
Magna’s European vehicle production fell last year to 14.9 million units from 16 million a year earlier, but continued cost cutting should improve margins, and that “can have a meaningful impact on the company’s profitability,” he added
By year end, Magna’s stock could rise to between $65 and $75 a share, he said. “Come the second half of this year, people are going to be looking at 2014. You will see a lot of analysts’ estimates get revised much higher as they look at 2014 and the potential for European vehicles to rebound...Longer term, if [production volumes] snap back to the average of anywhere between 17 to 18 million units, then you have material upside.”