UBS analyst Fadi Chamoun is doubling his 2009 loss per share estimate for Magna International Inc. (MGA) to $3.21 from $1.47, arguing Frank Stronach’s auto parts company will be hurt even more than expected in the face of dwindling auto sales in North America and Europe.
The analyst is now projecting an operating loss of $544-million for Magna in 2009, representing a nearly $1-billion decline from 2008 levels. He predicts Magna’s free cash flow could turn negative.
Mr. Chamoun rates Magna shares “neutral,” lowering his 12-month target price to $30 from $35.
Mr. Chamoun said:
Although Magna has adjusted its own manufacturing footprint over the past three years to lower costs in North America and expand its business overseas and with international automakers, it has been hammered hard over the past six months as its key Detroit automaker customers scale back production “at a fast and highly unpredictable pace.
Despite tempting valuation based on normalized earnings and Magna’s strengths (balance sheet, management, and strong competitive strength), the path to recovery remains highly uncertain and the near-term challenges have yet to be fully discounted in consensus expectations. We believe the stock could drift lower heading into its fourth quarter report next Tuesday.
Magna will need to restructure further to restore profitability, he added.
Magna will report an operating loss of $149-million, or $.84 per share, for the fourth quarter, according to Mr. Chamoun’s estimate. The stock is trading at around $26 on the New York Stock Exchange.