Magna International Could be a Value Play

Prospects for the auto-parts industry are as dismal as this year’s cold and blustery winter but analysts see sun and sandy beaches for Magna International (MGA) shares. As auto manufacturing in North America cools off in the midst of the housing slump and credit crunch, they are recommending Magna’s stock as a value play.

Peter Sklar of BMO Capital Markets notes that the company’s price-to-book multiple is close to 1.05, near the lower boundary of its historical range. So is its EBITDA multiple, which is near 3.5. These are levels that presage price recoveries, Sklar says.

UBS Investment Research analysts Fadi Chamoun and Rob Hinchcliffe are warming up to the large cash hoard, which provides the ability to weather inclement conditions. According to the two, the present (estimated) level of cash near $2.5 billion (U.S.) is projected to reach $4 billion (US) in 2008. Magna tends to avoid share buybacks, and its constitution restricts the distribution payout ratio to 20% of earnings.