In an automotive industry that is undergoing a significant transformation towards electric vehicles and autonomous driving, a company is emerging whose strong global presence and more than 340 production sites make it a major player in the market. The company manufactures key components for both traditional and electric vehicles and works with leading automakers such as BMW, General Motors and Ford to ensure the supply of quality parts.

Investing in this company is proving attractive due to its stable dividend payout and solid growth. With a current dividend yield of 4.33% and an average annual dividend growth rate of 6.40% over the past three years, it offers an attractive opportunity for investors looking for a combination of stability and potential for future appreciation. In the following paragraphs, we look at the company's key metrics and plans for future growth that make this an interesting investment in the context of a rapidly changing automotive sector.

Company introduction

Magna International $MGA is a Canadian company founded in 1957 that focuses on the manufacture of parts and components for the automotive industry, both for internal combustion engine vehicles and electric vehicles (EVs). It is headquartered in Ontario, and operates in more than 25 countries. With more than 340 manufacturing facilities and 89 development centres worldwide, it is one of the largest suppliers to the automotive industry.

Magna manufactures a wide range of parts, from body and chassis components, to electronics and powertrains, to EV-specific components such as electric transmissions, battery systems and other key parts. The company can also manufacture an entire vehicle, making it an exceptional player in the market. In Graz, Austria, for example, it manufactures for carmakers such as Jaguar and Mercedes-Benz.

In 2015, Magna strengthened its presence in the electric mobility sector with the acquisition of German company Getrag, one of the largest manufacturers of gearboxes, including those for hybrid and electric drives. This acquisition enabled it to become a key supplier of components for electric vehicles and to expand its offering to include other important technologies for vehicle electrification.

Magna has long-standing partnerships with the world's leading automakers such as BMW, General Motors and Ford, and also works with technology companies focused on autonomous driving and electromobility. In addition, the company continues to make acquisitions that help it expand its portfolio, such as its 2018 purchase of OLSA, an Italian lighting systems manufacturer.

With its global presence, flexible manufacturing and ability to supply components for both conventional and electric drives, Magna maintains a strong position in the rapidly changing automotive market.

Dividends

Magna International has a long and stable history of dividend payments, which it has maintained since 1992. The current dividend is $0.48 per share, reflecting the company's commitment to reward its shareholders on a regular basis.

Magna currently offers a dividend yield of 4.33% and has averaged an annual dividend growth rate of 6.40% over the past three years, compared to 7.20% over the past five years. Over the past decade, the dividend growth rate has climbed to 13.50% annually. This steady growth rate indicates Magna's emphasis on increasing returns to its shareholders.

Dividend sustainability

The dividend payout ratio is a key indicator for assessing the sustainability of the dividend, which stood at 0.34 in 2023. This low ratio means that Magna retains a significant portion of its earnings, allowing it to invest in future growth and stabilisation. In addition, the company has a stable financial performance, as it has regularly posted positive net income for more than a decade. This demonstrates its strong profitability and financial stability, which is essential for maintaining the dividend.

Outlook for the future

Magna has positive growth indicators. Its earnings per share growth over the last three years is 12.90% per annum, outperforming almost 70% of global competitors. Its earnings per share (EPS) is also growing at a rate of 13.30% per annum, indicating strong potential for future profitability growth. On the other hand, 5-year EBITDA growth was negative (-5.30%).

How was the company's last quarter?

Total global light vehicle production was up 2%, with the largest increases in China (6%) and North America (1%), while Europe saw a 5% decline. However, despite this growth, total sales remained virtually unchanged at $11 billion. This result was impacted by the acquisition of Veoneer Active Safety in 2023 and the introduction of new programs, offset by lower complete vehicle assembly volumes and the depreciation of foreign currencies against the U.S. dollar.

Magna's net income in the second quarter of 2024 declined 8.3% year-over-year to $313 million. Despite the news, however, its outlook for the rest of the year, which it shared last month, remained largely unchanged. Seventy percent of Magna's revenue comes from business that is independent of powertrains, such as seats, body structures and frames, mirrors and more.

Earnings per share were $1.09, down from $1.18 in the second quarter of 2023. Adjusted earnings per share were $1.35, also down from $1.54 in the year-ago period. These decreases were due to lower sales of complete vehicles, higher warranty costs, lower share income and higher restructuring costs.

The positive element was increased cash from operating activities, which increased by $189 million to $736 million. The company also paid dividends of $134 million, issued C$450 million of bonds and completed the acquisition of HE System Electronic for $51 million. In addition, it won a contract to manufacture adjustable seats for an unnamed Chinese automaker.

Results for recent years

Plans for future growth

Magna International has ambitious plans for future growth that include several key strategies. The company is focusing on Innovation a technological advancementparticularly in the areas of electrification, autonomous driving and lightweight solutions. In this way, it aims to take advantage of new trends and strengthen its position as a leader in the automotive industry.

Another important aspect is strategic partnerships with major car manufacturers around the world. These partnerships enable Magne to expand its presence in key markets and gain a competitive advantage.

Magna also emphasizes operational excellence a customer satisfactionwhich helps it maintain the high quality of its products and services. These strategies have positioned the company well for sustainable growth opportunities in the future.

Challenges facing Magna:

While the growth strategy is strong, Magna faces several challenges. These include increasing competition in electric vehicles and autonomous driving, technological advancements that require constant innovation and investment, and a global supply chain challenge that was only recently amplified by the COVID-19 pandemic.

The situation should improve with the gradual transition to EVs - Magna predicts that EVs will account for a low 30% of all US vehicle sales by 2030. That's below the Biden administration's previously stated ambition for half of sales to be fully electric by then, a goal echoed by the campaign of Democratic presidential candidate Vice President Kamala Harris.

The number of electric cars worldwide continues to grow. By the end of 2023, there were roughly 42 million of them worldwide, up roughly 50 percent from a year earlier.

Key indicators

P/E (Price-to-Earnings) is 12.64, indicating that the stock is relatively cheap relative to earnings. The average P/E in the sector is often around 15-20, so this value indicates that the company is below the sector average, which may be of interest to value-seeking investors.

Fair price according to Bulios (undervalued) 👇

P/B (Price-to-Book) is 1.07, which means that the market price of the stock slightly exceeds the book value of the company. This may indicate that the market believes in some gains beyond net assets, which is a positive signal, but it is important to keep in mind that excessive valuation can signal risk. On the other hand, P/S (Price-to-Sales) is at a very low 0.29. This value suggests that the stock is significantly undervalued relative to earnings, which may be attractive to investors looking for companies with growth potential.

In terms of debt, D/E (Debt-to-Equity) is 0.52, indicating that the company does not have a high level of debt and is therefore in a safer zone. The sector average is usually around 1, so a low D/E value supports the stability of the company and reduces the risk of bankruptcy in tough economic times. Similarly, D/C (Debt-to-Capital) is 0.34, which confirms that only 34% of the company's capital comes from debt, indicating a healthy financing structure.

Regarding cash flow, FCF (Free Cash Flow) at 6.33% is a positive indicator that the company has sufficient cash flow to cover its investments, pay dividends or repay debt.

Analysts' expectations

The average target price is $47.10 with a high prediction of $55.00 and a low prediction of $41.00.

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The information in this article is for educational purposes only and does not serve as an investment recommendation. The authors present only the facts known to them and do not draw any conclusions or make any recommendations to the reader.

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