On Jan 24, we maintained our Neutral recommendation on Magna International Inc. ( MGA - Analyst Report ) despite its significant acquisitions and expansion strategy and improved third quarter 2012 earnings, as rising debt burden and increasing raw material costs are headwinds for the company.

Why Maintained?

Magna reported adjusted earnings per share of $1.13 in the third quarter of 2012, up 20.2% from 94 cents in the year-ago quarter. The results topped the Zacks Consensus Estimate by 10 cents. The year-over-year growth in earnings was aided by a decline in share count stemming from repurchase and cancellation of common stocks during the quarter.

Revenues climbed 6.3% year over year to $7.4 billion, exceeding the Zacks Consensus Estimate of $7 billion. The increase was driven by improvement in North American and Rest of World production sales and higher tooling, engineering and other sales, partly offset by decline in sales in the European business and Complete Vehicle Assembly segment.

Following the release of the third quarter results, the Zacks Consensus Estimate for 2012 increased 2.2% to $5.22 per share. However, the Zacks Consensus Estimate for 2013 decreased 2.9% to $5.35 per share. The company retains a Zacks Rank #3 (Hold).

Magna has expanded its footprint globally through accretive acquisitions and expansion strategy. The company has increased its presence in China with the joint venture with Changshu Automotive Trim Co. and Chery Tech.

It plans to expand in Europe with the acquisition of 4 die-casting operations of BDW Technologies. The company has also strengthened its position in Germany with the acquisition of assets of Vogelsitze GmbH, a Germany-based manufacturer of seats for the bus and light train industries.

The company will also see a favorable impact from the stricter regulation of the U.S. government for emissions control. This will increase the demand for auto parts and other fuel efficient components for trucks.

However, the company faces challenges from rising raw material prices. In addition, its is believed that by 2015, the global automobile manufacturers will tend to import parts and other valuable accessories from emerging markets which will be challenging for the North American automotive components industry.

Other Stocks to Consider

Commercial Vehicle Group Inc. ( CVGI - Snapshot Report ) , Oshkosh Corporation ( OSK - Snapshot Report ) and Strattec Security Corp ( STRT - Snapshot Report ) with Zacks Rank #1 (Strong Buy) are performing well in the same industry where Magna operates.