Magna International: Analysts Cut Estimates on Gloomy Auto Outlook

Several analysts lowered their earnings estimates for Magna International Inc. (MGA) Thursday after the Ontario-based auto supplier hosted a gloomy conference call Wednesday night during which its executives warned that the remainder of 2008 will be tougher as raw material costs balloon and auto output slows in North America.

RBC Capital Markets, KeyBanc Capital, and UBS Investment Research were among firms, which cut estimates. In a note, UBS analyst Fadi Chamoun wrote:

We do not foresee any positive catalyst for a quick turnaround in fundamentals and note that the earnings risk remains high due to weak vehicle sales.

He added that the shares nevertheless represent a good value for investors able to stomach near-term volatility. UBS cut its earnings estimate for the second half of the year by $0.44 per share, bringing its 2008 prediction to $5.57, and lowered its 2009 EPS estimate 3% to US$5.87. It rates the shares “buy” with a 12-month target of $73.

RBC analyst Nick Morton cut his EPS estimate to $5.40 from $6.27 and his 2009 estimate to $5.44 from $6.47. He rates the shares “outperform” with a target of $72. Magna’s North American operating profit was down 46% to $141-million, Mr. Morton noted, “and judging from the tone of the conference call, the second half may be worse.”

KeyBanc, which has a “hold” rating on the stock, cut its 2008 estimate to $5.85 from $6.95 and its 2009 estimate to $6 from $7.86.