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Estimates have been rising for Magna International Inc. (MGA - Free Report) after the company delivered both a revenue and earnings beat on May 10. It is a Zacks #1 Rank (Strong Buy) stock.

The company also pays a dividend that yields a solid 2.6%. And valuation is attractive too, with shares sporting a PEG ratio of only 0.8.

Company Description

Magna International Inc. is one of the largest diversified auto parts suppliers in the world. Geographically, its sales were divided as follows in the first quarter of 2012:

North America: 53%
Europe: 41%
Rest of World: 6%

The company was founded in 1961 and is headquartered in Aurora, Ontario, Canada. It has a market cap of $10.0 billion.

First Quarter Results

Magna International delivered strong first quarter results on May 10. Earnings per share came in at $1.46, beating the Zacks Consensus Estimate of $1.30. It was a 12% increase over the same quarter last year.

Net sales rose 7% to $7.666 billion, ahead of the Zacks Consensus Estimate of $7.375 billion. Sales increases in North America (+10%), Europe (+6%), and the rest of the world (+29%) were partially offset by decreases in complete vehicle assembly sales (-11%) and tooling, engineering and other sales (-7%).

Gross profit expanded from 12.2% to 12.9% of sales in the quarter, which helped drive a 10% increase in operating income.

Estimates Rising

Magna expects 2012 revenue between $29.0 and $30.5 billion, driven by light vehicle production of 14.4 million units in North America and 12.7 million units in Western Europe. This bullish outlook prompted analysts to revise their estimates significantly higher. It is now a Zacks #1 Rank (Strong Buy) stock.

The Zacks Consensus Estimate for 2012 is now $4.86, representing 8% growth over 2011 EPS. The 2013 consensus estimate is currently $5.53, corresponding with 14% EPS growth.

2.6% Yield

In addition to strong earnings growth, the company offers a dividend that yields a solid 2.6%. The company did cut its dividend during the Great Recession, but it has raised it 4 times since then. Its quarterly dividend of 27.5 cents per share is above its pre-cut high of 19 cents.

Reasonable Valuation

The valuation picture looks very reasonable for Magna. Shares trade at just 8.3x 12-month forward earnings, below the industry median of 9.7x and its 10-year median of 10.2x.

Its PEG ratio is 0.8 based on a consensus long-term growth rate of 10.3%.

Magna's price to sales ratio of 0.3 is also below both the peer group multiple and its historical multiple.

The Bottom Line

With rising estimates, strong growth projections, a 2.6% yield and very reasonable valuation, Magna International offers attractive total return potential.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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