Magna International: Analysts Raise Profit Forecasts After Beat Quarter

Magna International, Inc. (MGA) reported first-quarter earnings per share of $1.96 which easily surpassed the consensus estimate of $1.33. Revenues came in at $6.4 billion—a record for the company. Analysts have been upping their profit forecasts for this stock. MGA has a price-to-book ratio of 1.5, compared to 4.6 for the market and 2.2 for the industry.

Magna International, Inc. designs, develops and manufactures automotive systems, assemblies, modules and components, and engineers and assembles complete vehicles, primarily for sale to original equipment manufacturers of cars and light trucks in three geographic segments: North America, Europe, and Rest of World (primarily Asia, South America and Africa).

On May 10, MGA posted first-quarter profits of $1.96 per share, which crushed the consensus estimate of $1.33 by 47.4%. However, compared to earnings in the prior-year period, the result was down three cents. Revenues of $6.4 billion were a record for the company and represented a 6.7% increase over the $6.0 billion achieved in the first quarter of 2006. The company cited increases in its North American, European and Rest of World production sales along with complete vehicle assembly sales as fueling quarterly revenues.

Looking ahead, MGA projects total sales between $23.5 billion and $24.8 billion, based on light vehicle production volumes of about 15.3 million units in North America and 15.5 million units in Europe.

Analysts responded to the company’s strong forecast by upping their earnings estimates. Consensus estimates for this year have risen 51 cents to $6.49 over the past 30 days, with 12 of the 18 covering analysts upping their forecasts. Estimates for next year jumped 37 cents to $7.13 over the same period of time. Upward revisions were submitted by 11 of the 18 covering analysts. Earnings per share are projected to grow 10% over the next 3-5 years.

On May 10, the Board of Directors declared a quarterly cash dividend of 24 cents per share of stock. The dividend is payable on Jun 15 to shareholders of record as of May 31. MGA has a current dividend yield of 1.03%.

Last month MGA announced that Russian billionaire Oleg Deripaska, through his Basic Element holding company, will invest $1.54 billion in the company. Chairman Frank Stronach stated, "Our partnership will accelerate Magna's growth in Russia and surrounding countries, markets that we see as holding significant opportunities for us." The move caused many to speculate that MGA is gathering cash in an attempt to make a bid for Chrysler.

MGA is currently trading at a valuation of 14.4x current fiscal-year estimated earnings and at 13.1x next fiscal-year estimated earnings. The market, as represented by the S&P 500, is trading at a valuation of 16.6x current fiscal-year estimated earnings and at 15.5x next fiscal-year estimated earnings. The company has a price-to-book ratio of 1.5, compared to 4.6 for the market and 2.2 for the industry.

MGA 1-yr chart: