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Magna International Inc. (USA) (MGA): Can Earnings Drive It Higher?

Magna International Inc. (USA) (NYSE:MGA)Tomorrow, Magna International Inc. (USA) (NYSE:MGA) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they’ll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you’ll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

As a maker of systems and components for the automotive industry, Magna International Inc. (USA) (NYSE:MGA)’s prospects are intimately tied to the success of automakers in the U.S. and abroad. Lately, after a long period of deferred car sales as financially strapped car owners held onto their used vehicles longer than ever, the economic rebound has finally led to higher auto sales, helping Magna’s stock rise substantially. Let’s take an early look at what’s been happening with Magna International Inc. (USA) (NYSE:MGA) over the past quarter and what we’re likely to see in its quarterly report.

Stats on Magna International

Analyst EPS Estimate $1.44
Change From Year-Ago EPS (1.4%)
Revenue Estimate $8.09 billion
Change From Year-Ago Revenue 5.6%
Earnings Beats in Past 4 Quarters 4

Source: Yahoo! Finance.

Can Magna International’s earnings keep driving higher?
Analysts have gotten a lot more excited about Magna International Inc. (USA) (NYSE:MGA)’s earnings potential in recent months, boosting their estimates for the first quarter by $0.07 per share and increasing their full-year 2013 consensus by more than twice that amount. The Canadian company’s stock has soared in response, rising 20% since early February.

Magna has definitely benefited from the rise in activity at the car companies it serves. Back in March, the company reported strong results for 2012’s fourth quarter, with North American sales providing a bit overall boost. Magna International Inc. (USA) (NYSE:MGA) also raised its estimates for full-year 2013 sales by about $700 million, with its core vehicle-parts business accounting for $500 million of the increase.

But the big problem for Magna has come from Europe. Rival Johnson Controls, Inc. (NYSE:JCI) , which gets more of its revenue from Europe than from North America, has seen poor conditions in Europe weigh on its overall results. That’s consistent with the big problems that major customers Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM) have seen in their own European sales figures, with Ford having lost $1.75 billion last year in Europe and expecting that figure to balloon upward to $2 billion for 2013. Although GM managed to reduce its European losses in the first quarter to just $175 million, both it and Ford Motor Company (NYSE:F) have a lot of work to do in order to get their operations on the continent back to profitability.

Still, another bright spot internationally for Magna International Inc. (USA) (NYSE:MGA) has come from China, which has helped the company triple its revenue from its “rest of world” segment since 2009. Given the success that General Motors Company (NYSE:GM) in particular has had in China, Magna’s ability to piggyback onto the automaker’s sales bodes well for its future prospects.

In Magna International Inc. (USA) (NYSE:MGA)’s quarterly report, be sure to compare the financial results the company releases with those from Johnson Controls, Inc. (NYSE:JCI)’ quarterly report late last month. With Magna fetching a much more reasonable valuation than Johnson Controls, Magna might eventually start getting looked at as a takeover candidate if the industry’s prospects keep improving.

The article How Auto Gains Are Driving Magna International’s Success originally appeared on

Motley Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Ford Motor Company (NYSE:F) and General Motors Company (NYSE:GM). The Motley Fool owns shares of Ford.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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