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This year was a good year for Canadian investors. S & P / TSX Comprehensive Index To date, we are trading 23.6% higher. However, Magna International (TSX: MG)(NYSE: MGA) It underperformed the broader stock market by offering a return of only 16%. The decline in automobile production due to the shortage of semiconductor chips is putting pressure on its finances and stock prices. Now let’s evaluate whether Magna International will be a great purchase right now. First, let’s take a look at the recently reported third quarter performance.
Magna International’s third-quarter performance slump
Between Third quarter, Magna International’s top line was US $ 7.92 billion, down 13% year-on-year. Better comparisons will be quarterly this year in a harsh environment due to declining car production. Subsequently, sales fell 12% due to negative product mix in North America and Europe, unfavorable exchange rates, and the discontinuation of investments in three external facilities.
In addition to sluggish sales, unpredictable production schedules, increased input costs such as freight and commodities, and a US $ 45 million reserve for investment. Evergrande It also squeezed the margin and reduced the EBIT margin from 6.2% in the previous quarter to 2.9%. Meanwhile, the company generated US $ 229 million adjusted EBIT. This represents a significant decrease from US $ 557 million in the second quarter. However, the company closed the quarter with strong liquidity of US $ 6.2 billion. Therefore, it is well equipped to fund growth initiatives.
Magna International Growth Outlook
Magna International’s management expects light vehicle production to decline this year, as chip shortages are expected to continue to hurt vehicle production. Management expects a 7%, 9%, and 7% year-on-year decrease in North America, Europe, and China, respectively. As production declined, management also reduced this year’s sales and EBIT guidance. Management expects revenue to be between $ 35.4 billion and $ 36.4 billion, but adjusted EBIT margins could be between 5.1% and 5.4%.
Despite its short-term challenges I’m bullish on Magna International With significant exposure to the growing EV market, long-term growth is expected. In July, the company established a joint venture with LG Electronics Strengthen our position in the global electric drivetrain market as demand for electronic motors, inverters, and electric drive systems can grow significantly over the next few years.
Magna International is also rethinking the face and features of electric vehicles through Mezzo Panel technology. This technology provides a great opportunity for designers and engineers to integrate Advanced Driver Assistance Systems (ADAS). Its ICON digital radar can also strengthen its position in the ADAS market.
Meanwhile, the ADAS market has the potential to grow at a CAGR of 20% from 2021 to 2023 and then 15-20% from 2021 to 2027. With its innovative products, Magna International is ready to profit from the growing ADAS market.
Despite its sound growth prospects, Magna International is trading with an attractive reputation. Its futures price-earnings ratio and futures price-earnings ratio are 0.7 and 14.5, respectively. We will also pay a quarterly dividend of US $ 0.43 per share, resulting in a forward yield of 2.08%. Therefore, considering all of the above factors, Magna International expects to outperform the market over the next three years.
Is Magna International (TSX: MG) a good buy at these levels?
https://www.fool.ca/2021/11/25/is-magna-international-tsxmg-a-good-buy-at-these-levels/ Is Magna International (TSX: MG) a good buy at these levels?