Post by
retiredcf on Jul 23, 2021 9:27am
TD 2
Magna International Inc.
(MGA-N, MG-T) US$85.13 | C$109.64
Q2/21 Preview: Compelling Value with Share Price Pull Back
Event
Magna is scheduled to release its Q2/21 results pre-market on August 6.
Impact: NEUTRAL
Q2/21 Preview: We have lowered our Q2/21 and 2021 financial outlook for Magna, as the semiconductor shortage continues to negatively impact OEM production. While Magna is the most diverse auto supplier under coverage it is not immune to this global headwind. Our adjusted forecast stems simply from lower global production volumes and the impact of decremental margins.
2022 Outlook: It appears the semiconductor shortage will continue to impact global production through Q3/21, albeit visibility remains limited upon the timing of a resolution. That stated, consumer demand remains strong currently and we believe will continue through 2022, supported by an accommodative interest rate environment. In the interim, strong demand and production constraints have led U.S. light vehicle inventory levels to historical lows at under one-month of days supply. It is our view that this headwind should become a tailwind for the sector in general, as it should drive a notable replenishment cycle in 2022. For the most part, our 2022 financial forecast is unchanged, but could prove conservative should replenishment volumes drive North American 2022 annual production in excess of our modestly-below consensus forecast.
Investment Thesis Update: We have lowered target multiples for our auto supplier coverage universe recently due to the lower visibility with respect to their near-term earnings outlook. For Magna, however, we are content leaving our premium target multiple unchanged at this time. Magna's growth outlook is anchored by its focus on and solid portfolio exposure to megatrends, specifically electrification, ADAS, system integration, and CVA. Layer on top of this a strong financial position and attractive FCF profile that continues to support its active NCIB. With our constructive outlook for the industry post the current headwinds, we believe Magna presents a compelling investment opportunity with the current share price pull-back.
TD Investment Conclusion
We maintain our BUY rating and US$110.00 target and will review our forecasts/ recommendation post the Q2/21 release
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