From its beginnings as purely an auto supplier, Linamar Corp. (TSX:LNR) has been an example of Canadian excellence. Today, Linamar is a diversified manufacturing company that’s applying this excellence as it continues to expand and grow.
Double-digit growth for this auto stock
Linamar has a long and successful history that has translated into solid long-term performance for Linamar stock.
Linamar’s business is comprised of two segments. The first, and most important one, is its mobility business. This business is essentially an auto parts business, with a focus on highly specialized components and systems. It accounted for 76% of total revenue in 2022. The other segment is the Industrial segment. This segment manufactures equipment for the construction and agriculture industries. It accounts for the remaining 24% of Linamar’s revenue.
Business trends in both of these businesses are strong. In the mobility business, for example, sales increased 18.5% to $6 billion in 2022. This was driven by strong recovering markets and market share gains. In fact, this strength accelerated in the fourth quarter, where sales actually increased 25% to $1.5 billion.
This strength is a reflection of both recovering markets and Linamar’s strengths. In fact, Linamar has been at this since the 1960s. In this time period, the company has continuously strived to grow and improve. And so it has. This year was a year that marked a year of records – record sales, record wins, and record market share.
Linamar sets its own path forward
One of the things that I really like about Linamar is its relentless drive to stay ahead of the game. This was on full display when the company set it sights on diversifying away from the highly cyclical auto supply business. At the time, there were many doubters. Today, this strategy has shown its value. The industrial segment currently accounts for a quarter of Linamar’s revenue and sales increased 73% in Q4 2022.
Linamar has continued to show foresight with continued expansion into related industries. For example, the company decided to add the very lucrative agricultural industry to its list of industries to target. As such, Linamar now lends its specialized manufacturing capabilities to supply this industry with its highly specialized machinery. For example, Linamar manufactures harvesting equipment and crop fertilizer applicator equipment.
The numbers say it all
Linamar’s road to where it is today was a long but steady one. Today, Linamar’s business is backed by the strength of a stellar balance sheet, a strong growth profile, strong margins, and cash flow generation. Revenue of almost $8 billion is up 4% versus five years ago – a very impressive feat considering that the global economy took one of its biggest hits ever due to the 2020 pandemic.
Furthermore, Linamar is backed by a strong balance sheet that will continue to support its growth. Liquidity is strong, at $1.3 billion, net debt continues to improve, and free cash flow of $94 million represented the tenth consecutive year of positive free cash flow. And last but not least, the annual dividend on Linamar stock was increased by 10% to the current $0.88 per share.
Linamar is trading below book value and at a mere eight times this year’s EPS estimate. This valuation, coupled with strong growth trends and profitability, make Linamar stock my number one auto stock to buy.