Magna International (TSX:MG) is one of the largest automotive suppliers globally, with 345 manufacturing operations, 105 engineering and sales centres, and 177,00 employees. The company has been under pressure over the last three years, with its stock price falling over 54% compared to its 2021 highs. Supply chain issues and weakness in the automotive sector, especially the EV (electric vehicles) segment, have weighed on its financials and stock price. The steep pullback has raised its dividend yield to 4.6%.
Let’s look at its performance in the first six months of this year and growth prospects to assess whether the stock is a buy for its 4.6% dividend yield.
Magna’s performance this year
In the first two quarters of 2024, Magna International posted revenue of $21.9 billion, representing a 1% increase from the previous year. Its sales growth aligned with a 1% global light vehicle production increase. Meanwhile, its adjusted EBIT (earnings before interest and tax) fell 0.9% to $1 billion. Lower volumes of completed vehicles, unfavourable currency translation, higher production costs, lower equity income, and higher restructuring costs dragged its adjusted EBIT down. However, some of the declines were offset by productivity and efficiency improvements.
Meanwhile, its adjusted EPS (earnings per share) stood at $2.44, representing a 9.3% decline from $2.69 in the previous year’s quarter. The company also generated $1.3 billion of cash from its operations before any changes to its operating assets and liabilities. It closed the quarter with liquidity of $3.7 billion, including $999 million of cash. With its adjusted debt at $7.6 billion, the company’s adjusted debt-to-adjusted EBITDA ratio stood at a healthy 1.9. Now, let’s look at its growth prospects.
Magna’s growth prospects
Despite the near-term weakness, the automotive industry’s long-term growth prospects look healthy. Spherical Insights projects the global automotive market to grow at a CAGR (compound annual growth rate) of 6.8% from 2023 to 2033. Moreover, Fortune Business Insights projects the EV segment to grow at a 13.8% CAGR from 2024 to 2032. Growth in the automotive sector would expand Magna International’s addressable market.
Given Magna’s expertise and continued investments in megatrends, such as powertrain electrification, battery enclosures, and active safety segments, it is well-positioned to benefit from the market expansion. Besides, the company has undertaken several restructuring initiatives, such as divesting non-core facilities and right-sizing its vehicle business. It has also initiated vertical integration of critical sub-systems, which could accelerate in-house development and secure key product supply.
Amid these growth initiatives, Magna’s management expects its 2026 topline to be between $44–$46.5 billion, with the midpoint of the guidance representing an annualized growth of 1.9%. Also, its adjusted EBIT margin could expand to 6.7–7.4% compared to 5.23% in 2023. So, its growth prospects look healthy.
Investors’ takeaway
The steep correction over the last three years has dragged Magna’s valuation down to attractive levels. Its NTM (next 12 months) price-to-sales and NTM price-to-earnings multiples stand at 0.3 and 7.3, respectively. Given its healthy growth prospects, attractive valuation, and high dividend yield, I believe Magna International would be an excellent buy.
