Magna International (TSX: MG)(NYSE: MGA) has had a remarkable year. The stock has bounced 192% from its low in March 2020. Who expected an auto parts supplier to triple shareholder wealth in less than a year?
This morning, the stock is surging even higher. At the time of writing, Magna stock is up 8.4% from the opening bell. That’s because investors are finally recognizing the company’s pivotal role in the electric vehicle race. It’s also because its latest quarterly earnings report indicates the growth strategy is starting to pay off.
Here’s a closer look.
Fourth-quarter results
Magna blew it out of the water with its latest quarterly report. The top line and bottom line both surpassed expectations.
The company reported a 12.4% bump in sales to US$10.57 billion (CA$13.40 billion) above consensus). Meanwhile, the adjusted EBIT margin expanded 410 bps to 10.4%. The company also boosted its dividend by 7.5%. That means the stock’s dividend yield could be as high as 2.3% this year.
The dividend boost and bump in margins are driven by the company’s new initiatives. Partnering with major car manufacturers has helped Magna create a cutting-edge platform for electric vehicles and self-driving cars.
EVs and self driving
Magna’s stunning performance could be a long-term trend. That’s because the company is gradually establishing itself as a key player in the electric vehicle and self-driving spaces.
The company recently inked a deal with LG to start manufacturing batteries for electric vehicles. Meanwhile, it’s been working with its network of 43 car manufacturers across the world to create a unified self-driving platform. Billions of dollars have been invested in this space, which puts the company in a great position to offer these parts and systems to nearly every electric car maker in the world over the next decade.
These parts and systems also have higher margins, which means Magna’s profitability could noticeably improve over time.
Magna stock valuation
For the year ahead, Magna forecasts sales of roughly US$40 to US$41 billion, or up to $51.7 billion. That means the stock is trading at a forward price-to-sales ratio of 0.6. It’s also trading at a price-to-earnings ratio of roughly 12.
Effectively, Magna could be the most reasonably priced stock in this sector of global transport.
Analysts have raised their price target for the stock after its recent quarterly report. Consensus suggests the stock could have as much as 20% upside this year. That makes Magna stock worth a closer look for both growth- and income-seeking investors.
Bottom line
Magna International stock is surging today on the back of great earnings. The company’s fourth-quarter results and forecast were better than expected. This is an early sign that the firm’s strategic moves into electric cars and self-driving tech is paying off.
Currently trading at 12 times earnings and offering a 2.3% dividend yield, this dividend-growth stock should certainly be on your watch list for 2021.
