Goldman Believes Magna Has Benefited From Favorable Vehicle Production

Analysts at Goldman Sachs say they’re positive on shares of Magna International Inc. (MGA) into the second quarter 2007, arguing business at Frank Stronach’s auto parts supplier is a lot healthier than it looks.

In the second quarter, Magna will likely outperform average earnings estimates by analysts tracking the company, the Goldman researchers say.

“After relatively strong 1Q2007 operating performance in which Magna substantially exceeded Street expectations, we think current 2Q estimates still do not adequately reflect the positive sequential benefits Magna should experience in the second quarter,” Goldman analysts wrote in a note to clients.

The Goldman analysts raised their estimate for second quarter earnings per share at Magna to US$1.90 from US$1.68.

They said they believe Magna has benefited from favorable production of several vehicles for which it provides parts in North America, including the Ford (F) F-Series SuperDuty pickup truck and several General Motors Corp. (GM) models. GM’s pickups and SUVs in particular helped Magna increase its revenue 4% sequentially from Q1 to Q2, Goldman Sachs estimates.

The Detroit automaker may be building inventory to protect itself ahead of contract talks with the United Auto Workers that start next month.

Goldman kept its full year EPS estimate unchanged for Magna. “We note that on a 6-month investment horizon we remain Neutral on Magna, which has a valuation discount to peers that we feel is justified by its high Big Three exposure and corporate governance concerns.”

MGA 1-yr chart: