UBS Investment Research analyst Fadi Chamoun has raised his 12-month price target on Magna International Inc. (MGA) shares to $55 from $37, saying the Ontario auto supplier and its rivals will enjoy a multi-year recovery not seen since at least the early 1990s.
Trends in Magna’s favour include recovering economic growth and higher light vehicle sales and production, the ability to pick up more market share and abating price pressure, Mr. Chamoun said in a Aug. 3 note to clients.
Based on vehicle volume projections from consultancy CSM Worldwide and Global Insight, the analyst estimates that Magna’s earnings will recover to C$5.28 in 2012 and C$6.36 in 2013, up from an estimated loss per share of C$3.80 this year.
“The path to Magna’s earnings recovery is, however, fraught with risk,” he wrote.
We estimate that as a result of its high exposure to the Detroit three, Magna suffered a structural decline in revenues of approximately $4-billion, which will be challenging to offset, and the company remains reliant on the extent to which GM and Chrysler can execute a successful recovery in the medium-term.
Magna’s bid to takeover GM’s European unit Opel with Russian partner Sberbank is a high-risk strategy, the analyst said.
Mr. Chamoun rates Magna shares “neutral,” unchanged from his previous recommendation.