Magna International Posts Blockbuster Earnings, Signaling Auto Industry Rebound - Barron's

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Magna International posted fourth-quarter sales of $10.6 billion.
Cole Burston/Bloomberg

Investors were nervous about the car business in the depth of the pandemic. Car sales were dropping, and unemployment was spiking. But things recovered faster than expected, and now 2021 is looking like a good year for the auto industry.

On Friday, one of the largest auto parts suppliers, Magna International (ticker: MGA), reported strong fourth-quarter numbers. What’s more, financial guidance offered for 2021 exceeded analyst projections.

Magna earned $2.83 in adjusted earnings per share from $10.6 billion in sales. Wall Street was looking for $2.03 a share and $10.1 billion, respectively. It is the second consecutive quarterly “beat,” showing continued improvement from the dreadful pandemic-affected second quarter of 2020.

Magna also reported unadjusted, or GAAP—short for generally accepted accounting principles—earnings of $2.45 a share. Most companies report both adjusted and unadjusted figures. In the case of Magna, most of the difference is due to about $100 million in restructuring spending.

Looking ahead, Magna expects to earn roughly $7 in per-share earnings from about $40.8 billion in sales in 2021. Wall Street is projecting $6.52 in per-share earnings and $38.6 billion, respectively, for the full year.

That’s good news for the entire sector. Magna expects light-vehicle production to hit roughly 58 million units in North America, Europe, and China combined in 2021. That’s a jump from roughly 49 million units in 2020. What’s more, Magna sees annual light-vehicle production hitting 62 million by 2023.

Auto investors have started to take notice of the recovery. Over the past six months, shares of Magna, General Motors (GM), and Ford Motor (F) are up more than 60% on average. The S&P 500, for comparison, is up 16% over the same span.

Some of those gains, however, are rebounds from pandemic lows. Magna, for instance, trades for roughly 10 times projected 2021 earnings. Auto companies don’t typically get awarded big price-to-earnings ratios by the market, but 10 times looks attractive for a company expecting to grow earnings for the next couple of years.

One reason for the low PE ratios is the threat of disruption. Investors are worried about traditional auto firms losing sales to electric-vehicle makers. The parts industry, however, is insulated from that dynamic. Most parts companies, including Magna, like to sell to EV makers. EVs are more electrically complex, with means more parts to sell. Magna is manufacturing the Fisker (FSR) Ocean all-electric SUV at its Steyr division.

Magna stock was up 7.2% in recent trading. The S&P was up 0.3%, and the Dow Jones Industrial Average rose 0.2%.

Magna hosts a conference call beginning at 8 a.m. ET to discuss results. Analysts and investors will be interested in EV trends, as well as the strength of the automotive recovery.

Write to Al Root at allen.root@dowjones.com

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