MG:CC - Magna Stock: A Value Seeker's Dream Come True

2023-12-12 15:30:00 ET

Shares of Magna International ( TSX:MG ) continue to upset investors who bought in during the highs of the last few years. Yet many hold out hope that the stock is going to recover eventually. That time may have come.

Let’s look at what’s been happening with Magna stock lately. And even more importantly, let’s see if shares are undervalued on the TSX today.

Heading into the future

Magna stock has become a headliner mainly for its focus on really anything futuristic . Whether it’s electronic components, electric vehicles , recyclable liners, or anything else the car parts manufacturer wants.

This occurred quite recently when Magna stock announced it would be enhancing the automated driving capabilities of vehicles by joining NorthStar. This industrial program looks to innovate 5G, building a private 5G network at Magna’s test track in Sweden.

There, the company will be working on its Advanced Driver Assistance System (ADAS). In particular, it will be focusing on vehicle-to-vehicle and vehicle-to-everything connections. Yet investors haven’t been all that impressed since earnings. So, let’s take a look at that.

Some earnings excitement

During the last quarter, Magna stock continued to focus on launching new programs as well as attempting to cut costs amidst continued inflationary pressures. Yet the company has been making great progress after huge supply-chain disruptions during and after the pandemic restrictions hit hard.

Its most recent quarter saw sales increase 15% year over year to $10.7 billion. Diluted earnings per share came to $1.37, with adjusted earnings before interest and taxes (EBIT) up to $615 million compared to $452 million the year before.

The company also managed to increase its adjusted EBIT margin and net income. This comes even after a strike recently. Production looks as if it will increase for the year, and the company narrowed its focus on total sales for the year as well. So, what did analysts think?

Looking ahead

While earnings are great, analysts narrowed their focus on what this means for the future of Magna stock. Even though the recent earnings were encouraging, some analysts believe there is still a balanced risk versus reward for investors.

Free cash flow should continue to improve as well as capital expenditure spending. Overall, the recent performance caused analysts to increase their potential upside for Magna stock as the company beat estimates and increased guidance.

While it will remain to be seen if the company breaks three digits once more in the next year, analysts believe it will get there — especially as Magna stock continues to focus on new projects and keeping costs down.

Bottom line

So, with share trading at 15.14 times earnings and a dividend yield of 3.34%, this stock looks like a steal — especially with shares down 8% in the last year but rising 14% since earnings. All in all, this stock offers a higher-than-normal dividend yield compared to its five-year average of 2.83%. And that dividend looks completely stable with a payout ratio at 50.83% as of writing. So, investors, you can certainly be sure to be paid while you wait for this eventual recovery.

The post Magna Stock: A Value Seeker’s Dream Come True appeared first on The Motley Fool Canada .

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy .

2023