There are many ways to get in on the electric vehicle market. There’s investing in car manufacturers themselves. Or you can invest in the technology and even parts behind these new products.
That’s why today I’m going to be discussing the future of Magna International (TSX:MG). The Canadian car company has been struggling over the last years. But today we’re going to dive into whether there is hope in the not-too-distant future for Magna stock and its shareholders.
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A rough road, potentially behind them?
Magna stock has been on a rough road over the last few years. The pandemic was a major bump in business. The pandemic restrictions that forced people into their homes also meant forcing the doors closed for these companies creating parts and vehicles for the masses.
As restrictions eased and many people had tons of cash in their pockets looking to spend, Magna stock was able to improve. Yet supply-chain demands continued to weigh on the company, with disruptions seeming to never go away.
Even now, some supply-chain issues with the company haven’t been solved. Yet, as of their latest earnings report, it seems as though there could be a turn around for the company.
Earnings boost
It was a strong first quarter for Magna stock after quarter after quarter of missing estimates. Sales were up 11% year over year to $10.7 billion. This increase was enormous compared to global light vehicle production, which was up by 3%.
Diluted earnings per share hit $0.73, and the company also raised its outlook for adjusted earnings before interest and taxes. It moved the guidance from between 4.1% to 5.1%, to a narrower 4.7% and 5.1%.
“Our strong first quarter operating performance reflects strong earnings on higher organic sales. More importantly, we are taking targeted actions to reduce expenses and optimize our cost structure. Our increased outlook is based on the strength of our first quarter results and the expected benefit of these targeted actions. We are highly focused on executing our strategy and remain confident in our ability to meet our long-term growth and margin outlook.
Swamy Kotagiri, Magna’s Chief Executive Officer
Analysts and the markets react
The strong results led to an increase in potential target prices, as well as moved the stock from a neutral position to a buy. This was supported by the now complete acquisition of Veoneer Active Safety Business, projected to generate more than $3 billion in sales by 2025.
In the near term, this is likely to bring down 2023 numbers, analysts stated. However, deal synergies could then bring in higher estimates for the years that follow. Shares of Magna stock jumped more than 6% after earnings on better-than-expected results. Despite expecting a decline in earnings, the opposite happened, leading to renewed confidence in a turnaround.
The stock is now seen as entering a point of higher reward and lower risk since the downgrades by analysts over the last few years. If there continues to be more improvement in the company, Magna should meet or even exceed its 2023 guidance, improving investor confidence as well as its share price.
That’s not to say there isn’t more room to grow. Shares of Magna stock are still down 9% in the last year, plunging back in February. Shares are now up about 8% in the last three months alone, providing upside potential for today’s investor.
With a 3.15% dividend yield, shares rising higher, and a strong outlook for the future of electric vehicles, Magna stock could be an excellent buy today.
