Tags: Magna | MGA | automotive | stocks

Magna International Looking for Stars to Align

By    |   Friday, 16 Sep 2011 12:47 PM

Magna International (MGA) is a global supplier of parts and subsystems for the auto manufacturing industry. The company headquarters are located in Ontario and the stock is dual-listed in the United States and under the stock symbol MG on the Toronto exchange.

Magna International produces a wide range of vehicle components, systems, and modules up to the point of manufacturing complete vehicles for the company's customers. Rated as the world's fifth-largest component manufacturer, Magna has more than 250 manufacturing facilities in 26 countries.

The company boasts of an entrepreneurial spirit, allowing individual business units significant autonomy. That said, the company's results are dependent on several outside factors over which it may have little control.

Some of those factors include:

• Sales are to a certain extent dependent on global vehicles sales. If the car manufacturers sell less, Magna will sell less.

• Vehicle manufacturers like to squeeze every penny out of suppliers. There are enough vehicle component manufacturing companies to make competition fierce. Vehicle manufacturers are not shy about seeking price reductions.

• Increasing costs of raw materials. Magna International purchases large amounts of plastic, rubber, and steel. Rising prices for these commodities will squeeze margins.

Growth factors

Yet growth could come from these factors:

• Magna is expanding in vehicle growth markets, including new facilities in Russia and China.

• Magna has the ability to produce a large portion of the final vehicle, including complete manufacture. In the second quarter of 2011, Magna produced 35,000 complete vehicles, a 57 percent increase over the previous year.

• A continued emphasis on increased fuel efficiency allows Magna to develop and sell more advanced components which hopefully sell at higher margins. Electric car components are a growth area.

Magna International has its dividend policy built right into the company constitution and must pay out at least 20 percent of net earnings as dividends. The result is a company with a currently attractive yield, close to 3 percent.

Canadian analysts at Canaccord Genuity recently upgraded MGA to buy from hold. RBC Capital Markets has consistently maintained an outperform rating on the stock and the analysts there have steadily increased their target price. The company reports next on Nov. 4.

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Magna International (MGA) is a global supplier of parts and subsystems for the auto manufacturing industry. The company headquarters are located in Ontario and the stock is dual-listed in the United States and under the stock symbol MG on the Toronto exchange. Magna...
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Friday, 16 Sep 2011 12:47 PM
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