Magna Shares Drop after Goldman Downgrade

The party is over for Ontario auto supplier Magna International Inc. (MGA).

That’s the conclusion of Goldman Sachs analysts Robert Barry and Patrick Archambault, who downgraded Magna shares to “sell” on Tuesday because its Detroit clients are reducing output. The analysts also say there is risk to Magna related to Chrysler LLC specifically, which has been culling its model lineup and may cut vehicles to which Magna provides parts.

They cut their six-month target price on Magna shares to $90 from $110.

In a research note the analysts wrote that,

Magna has been beating expectations so far this year. But next year it faces volume headwinds from its major [North American] customers, and we see less on the horizon in terms of high volume programs that can sustain the momentum.

We do think the company’s normal course issuer bid to buy back 9.5 million shares may limit some of the absolute downside. But on a relative basis we still think the stock is likely to underperform in an environment of falling production and supplier estimate revisions.

Roughly 67% of Magna’s global footprint lies in North America, much of it to the Detroit automakers, the analysts said. Americans are holding off on big purchases like cars and trucks amid an economic slowdown fuelled by a housing crisis, which in turn is forcing automakers to reduce production.

The Goldman analysts cut their 2008 U.S. auto sales forecasts to 15.6 million vehicles from 16 million vehicles to better reflect the worsening retail environment.

Magna is working aggressively on boosting its presence outside North America, particularly into the former Soviet states. Magna shares were trading in the range of $83.20, down $1.77 in early Tuesday morning trading on the New York Stock Exchange.