WABCO Holdings Inc. (WBC), Magna International Inc. (USA) (MGA), Johnson Controls, Inc. (JCI): American Auto Parts Industry on the Move

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EPS, sales per share and the book value per share of each company have been multiplied with the respective peer averages to come at a fair value of each company, based on each multiple. The product represents the price of the company, justifiable by the representative valuation multiple. The average of these products result in a target value for each company, advocated by the multiples of the peers selected.

As all three multiples were the lowest for Magna, therefore it is the most undervalued stock in the lot. The expected return is calculated as the difference between the fair value calculated and the current market price divided by the current market price.

Compared to the current market price of each stock, Magna and Johnson Controls, Inc. (NYSE:JCI) are undervalued relative to the market while Wabco is relatively overvalued. Based on current market statistics, Magna has a positive potential of 86.85% and Johnson Controls, Inc. (NYSE:JCI) is projected to give a return of 41.02%, while Wabco is projected to report negative returns of 29.45%.

Future prospects

On the grounds of the above analysis, the ascending trend in Magna’s stock price is likely to persist in the upcoming years. With the company’s continuing increase in the production of global light vehicle production in North America and significant growth of sales in the Rest of World segment, the company is expected to post high revenue growth in the future as well. In light of the future growth prospects and the comparable valuation performed, I would advise going long on Magna.

Awais Iqbal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article American Auto Parts Industry on the Move originally appeared on Fool.com and is written by Awais Iqbal.

Awais is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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