Key Morningstar Metrics for Magna International
- : C$109.00Fair Value Estimate
- : ★★★★Morningstar Rating
- : NoneMorningstar Economic Moat Rating
- : HighMorningstar Uncertainty Rating
What We Thought of Magna International’s Earnings
Magna International’s MG stock closed down 4.5% in May 1 trading, after the firm reported first-quarter adjusted diluted earnings per share of USD 1.38, which beat the USD 1.01 LSEG consensus. Management maintained full-year adjusted EPS guidance and repurchased USD 440 million of stock, plus another USD 136 million in April.
Why it matters: First-quarter results were helped by an earlier-than-expected cost recovery in a power and vision equity method joint venture, but we calculate that, excluding this benefit, EPS would still have beaten consensus. With a stable outlook, we don’t see the selloff as justified.
- Revenue fell 2% year over year, excluding a USD 520 million foreign-exchange benefit from the weaker US dollar, but ongoing operational excellence measures and lower warranty costs enabled, by our math, a 130-basis point improvement in adjusted EBIT margin, excluding the cost recovery, to 4.8%.
- About 55% of EBIT will be from the second half of the year, and there is heightened risk around 2026 performance should gas prices not come down soon or the Iran war worsen, which could be weighing on sentiment. Liquidity is strong at USD 5 billion, including USD 1.6 billion of cash.
The bottom line: We are raising our fair value estimate for no-moat Magna to C$109 per share. The change is from lowering our weighted average cost of capital and the time value of money.
- Under our updated discount rate framework, we lowered our WACC to 9.1% from 9.9%. Our beta of 1.1 reflects our view of Magna’s low balance-sheet leverage, cyclicality, and mix, now captured with greater granularity.
- Second-quarter results will likely be lower than the market was expecting going into May 1 due to the pull-forward of the cost recovery. We don’t see any change to Magna’s long-term earnings power, however. The firm will update the market at a Nov. 11 investor day in New York.
