Headquartered in Aurora, Canada, Magna International Inc. (MGA) is one of the world’s largest manufacturers of auto parts. The company has managed to stay afloat despite a  global semiconductor chip shortage that is plaguing the automotive industry. In fact, MGA delivered significant top-line and bottom-line growth in the first quarter (ended March 31, 2021). This can be attributed mainly to its consistent product innovations and presence across five continents and 28 countries.

The stock has lost 7.7% over the past month on investors’ concerns related to the semiconductor chip shortage. However, it has advanced 31.1% year-to-date and 6.7% over the past three months to close yesterday’s trading session at $92.80. MGA also raised its fiscal year 2021 outlook to reflect modestly higher sales and adjusted EBIT margin expectations.

According to a Grand View Research report, the global automotive aftermarket is expected to grow at a 3.8% CAGR over the next seven years and MGA is favorably positioned to benefit from the industry tailwinds.

Here are the factors that we think could shape MGA’s performance in the coming months:

Strategic Collaborations

In January, MGA confirmed its collaboration with Fisker Inc. (FSR) to develop an advanced driver assistance system (ADAS). Expanding on its joint venture with LG Electronics, there is speculation that MGA and LG are “very near to signing contracts” in a collaboration to produce an Apple Inc. (AAPL) Car. MGA also partnered with Israel start-up REE Automotive Ltd. in April  to jointly build modular electric vehicles (EVs).

Consistent Product Innovation

MGA introduced its Surface Element Lighting technology on June 7, 2021. The technology offers a new palette of options for automotive designers. The company’s new driver monitoring system, which is built on an advanced technology that alerts drivers when they take their eyes off the road for too long, is expected to help reduce accidents that occur because of distracted driving. It introduced its new eBeam technology on March 11, which is scalable and gives automakers the ability to electrify their trucks without sacrificing utility and functionality.

Revenue Growth Across Major Segments

For its fiscal first quarter, ended March 31, 2021, MGA’s total sales increased 17.6% year-over-year to $10.18 billion. The company’s sales from its Body Exteriors & Structures and Power & Vision segment increased 9.5% and 25.1%, respectively, year-over-year to $4.03 billion and $3.16 billion in the quarter. Its sales from its Seating Systems and Complete Vehicles segments increased 3.3% and 40%, respectively,  year-over-year to $1.30 billion and $1.85 billion. MGA’s net income for the quarter came in at $622 million, up 146.8% year-over-year. Its non-GAAP EPS increased 116.3% year-over-year to $1.86.

Favorable Analyst Estimates

Analysts expect MGA’s revenue to increase 127.4% for the current quarter, ending June 30, 2021, 12.2% for the quarter ending September 30, 2021, and 25.5% in 2021. The company’s EPS is expected to grow 91.9% in its fiscal year 2021 and 21.6% in 2022. Also, its EPS is expected to grow at a 39.4% rate per annum over the next five years.

MGA has an average broker rating of 1.55. Of the 19 Wall Street analysts that have rated the stock, 14 rated it a Strong Buy or Buy. Also, the stock is expected to hit $108.67 in the near term, which indicates a potential 17.1% upside.

POWR Ratings Reflect Rosy Prospects

MGA has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. MGA has a B grade for Momentum. This is justified given its 101.9% gains over the past nine months and 26.3% returns over the past six months.

The stock has a B grade for Growth, which is consistent with analysts’ expectations that its revenue and EPS will increase. It also has a B grade for Sentiment, which is in sync with favorable analyst sentiment.

MGA’s 1.24% and 6.87% respective trailing-12-month asset turnover and ROTC ratios, which are higher than the 0.98% and 5.34% industry averages, helped it earn a B grade for Quality.

In addition to the POWR Ratings grades we’ve just highlighted we’ve also rated MGA for Value and Stability. Click here to access all the MGA ratings.

MGA is ranked #8 out of 65 stocks in the A-rated Auto Parts industry.

If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of Strong Buy or Buy, you can access them here.

Bottom Line

Despite the ongoing global semiconductor shortage, MGA has grown significantly over the past few months because of its market dominance, strategic collaborations and consistent innovation. It is expected to grow more with increasing demand for autonomous driving and electrification-related solutions. So, we think its current price dip offers a solid entry opportunity in the stock.

Click here to checkout our Semiconductor Industry Report for 2021

MGA shares were trading at $93.12 per share on Tuesday morning, up $0.32 (+0.34%). Year-to-date, MGA has gained 31.53%, versus a 15.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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