On Sep 18, 2013, Zacks Investment Research upgraded Magna International Inc. (MGA - Analyst Report) to Outperform from Neutral, based on record-high revenues and earnings per share in the second quarter of 2013, coupled with improving operating cash flows and increased earnings guidance.
Why the Upgrade?
Earnings per share of Magna International reached a record high of $1.78 in the second quarter of 2013, driven by higher net income and lower share count. Even revenues reached a record high of $8.96 billion due to higher global sales. Moreover, the current revenue guidance of $33.3–$34.7 billion, if achieved, will imply record high annual revenue for the company in 2013.
The rising earnings of Magna International are boosting its cash flow. This in turn is facilitating capital deployment.
As a result of the strong earnings and guidance, 8 out of 10 analysts covering Magna International raised their earnings per share (EPS) guidance for 2013 in the last 60 days. This resulted in a 3.7% increase in the Zacks Consensus Estimate to $6.16 per share, up 6.44% year over year.
Further, 9 out of 10 analysts covering this stock with a Zacks Rank of 1 (Strong Buy) raised their 2014 EPS guidance in the last 60 days, resulting in a 4.8% rise in the Zacks Consensus Estimate to $7.41. This translates into a year-over-year growth of 20.25% for Magna International.
Stricter regulatory requirements and increasing customer preferences for light passenger vehicles are expected to boost sales in future. At the same time, rising raw material costs and increasing competition from low-cost countries could adversely affect earnings.
Other Stocks to Consider
Other companies worth considering in the original auto and truck business are American Axle & Manufacturing Holdings Inc. (AXL - Analyst Report), Gentex Corp. (GNTX - Snapshot Report), and Fuel Systems Solutions, Inc. (FSYS - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).