Magna International Inc. (NYSE:MGA) has not taken enough restructuring action – even though it is halving its dividend - to adjust for lower levels of auto production, especially given its exposure to ailing U.S. Automakers General Motors (NYSE:GM), Ford (NYSE:F) and Chrysler and its concentration in light truck sales, according to KeyBanc Capital Markets analyst Brett Hoselton.
While Magna has a strong balance sheet, with $2.4-billion in cash and $685-million in debt, it was disappointing that it cut its dividend in half and, at the current stock price, is now yielding only 2%.
Mr. Hoselton has also reduced his earnings estimate for the company to $4.08 from $5.85 in 2008, while making a whopping cut in 2009 estimates, to $0.02 a share from $6.00. For 2010, he cut his estimates to $2.63 from $6.46, “driven primarily by deterioration in the outlook for global light vehicle production.”
The analyst has a hold rating on Magna shres, saying investors should focus on companies with revenue diversification, solid organic revenue growth, lower exposure to Big 3 light truck production and manageable commodity costs.