Post by
retiredcf on Apr 23, 2021 8:23am
TD Upgrade
Raised their target by US$10.00. GLTA
Magna International Inc.
(MGA-N, MG-T) US$95.40 | C$119.33
Q1/21 Preview: Megatrend Position Deserves Premium Multiple Event
Magna is scheduled to release its Q1/21 financial results before market opens on May 6.
Impact: NEUTRAL; target-price increase on revised multiple
Q1/21 Summary: With Q1/21 North American production figures now published, we are lowering our H1/21 financial outlook for Magna. As we have noted in previous research, this is a function of the negative impact on global production due to the ongoing semiconductor shortage. That stated, we continue to anticipate a material y/y improvement in Adjusted EBITDA as the industry laps the commencement of the pandemic. Meanwhile, the lowering of our 2021 forecasts is modest based on our current assumption that much of the production shortfall should be made up for in H2/21.
Investment Thesis: In our opinion, investors will view the semiconductor headwind as transient to their investment outlook for Magna. We believe that this is supported by its diversified portfolio and strong financial position that should handily manage this headwind. This should enable investors to look through and focus on Magna's solid positioning for the evolution of mobility. This was on full display at its recent investor day, where Magna outlined that its portfolio is largely agnostic to the ongoing shift toward electrification from ICE, that it anticipates outsized growth from its EV and ADAS portfolios through 2027, and that all roads (new entrants and incumbent OEMs) lead to Magna when it comes to the potential for future complete vehicle assembly/engineering needs. Although we maintain that the majority of Magna's FCF continues to be generated from its lower multiple BES vertical, we believe that Magna is poised to benefit from its accelerated capital deployment toward megatrends. This, in our view, deserves a target valuation multiple toward the high end of its historical range.
Return of Capital: Magna recommenced its active NCIB following its Q4/20 results. Having reiterated its 2023 financial targets at its investor day, we continue to incorporate ~$1 billion in share buybacks in both our 2021 and 2022 forecasts.
TD Investment Conclusion
With further conviction from Magna's recent investor day in the growth outlook for its megatrend product offering, we are increasing our target multiple, leading to our revised US$110.00 target price.
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