Magna International Inc T.MG

TD2

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Magna International Inc.

(MGA-N, MG-T) US$95.75 | C$115.04

Q1/21 Results: A Strategically Diverse Cash Generating Portfolio Event

This morning pre-market, Magna reported Q1/21 financial results that were ahead of our forecast/consensus on all key metrics. Additionally, Magna modestly increased its 2021 annual financial guidance.

Impact: SLIGHTLY POSITIVE

 Q1/21 Summary: The Q1/21 financial release further enhances our positive outlook for Magna. In terms of the results, Magna, with its global portfolio, successfully navigated the ongoing semiconductor headwind to achieve sales well in excess of consensus. This drove incremental margin performance, that along with previously implemented cost saving initiatives, and a higher equity income contribution also resulted in an operating margin outperformance. This resulted in adjusted EPS handily exceeding TD/consensus expectations.

• 2021 Guidance: More of a focal point in our view is the modest increase in 2021 guidance. We believe investor concern for the industry has been magnified recently as data points emerge that the semiconductor shortage may have a greater impact upon 2021 global production than previously anticipated. While management acknowledged the near-term headwind and lowered its 2021 North American production forecast, it maintained its annual sales outlook and modestly increased its operating margin forecast. Additionally, the company increased its 2021 FCF outlook while reiterating its three-year FCF target of $5.5-to-$6-billion. We anticipate an NCIB of ~$1-billion annually over our financial forecast horizon.

• Investment Thesis: Magna's portfolio strength and diversity was on full display in the Q1/21 results/outlook. This should be enhanced by its growing capabilities within electrification, ADAS, system integration, and CVA. With current and forecast strength in global vehicle demand, Magna appears well positioned to generate attractive growth in earnings/FCF in 2021/2022, that should result in an increasing return of capital to shareholders. Overall, we continue to believe that Magna warrants a premium multiple relative to its peers due to its positioning for the evolution of mobility and tremendous financial flexibility.

  TD Investment Conclusion

  With our current industry outlook we continue to view Magna as an attractive risk/ reward investment. We maintain our BUY rating and US$110.00 target price