Stock pick: Magna International (MG) set for growth as auto industry recovers

Growth rate matching its peers again

Chart showing trailing 12-month performance of Magna International stock

Like most auto-related companies, Canadian auto parts darling Magna International (TSX: MG) took a hit during the recession when people stopped buying cars, but it’s been steadily making gains ever since.

On Monday, the company reported it fourth quarter results and many analysts were impressed by how well Frank Stronach’s former company performed.

It made $9.17 billion in sales, which was up 14% for the year. That’s despite vehicle production only increasing by 6% in 2013. Adjusted earnings before interest and taxes rose 57% year-over-year.

For the full fiscal year, the company reported sales of $34 billion, by 13% from 2012, while EBIT rose 25% to $2 billion.

Patrick Archambault, an analyst with Goldman Sachs, removed his sell rating on the stock on these results. The company had been trading at a premium to other auto suppliers, yet growing slower. That’s changed.

“Over the course of time, both revenue and EBIT growth rates have been stronger than expected on content wins and better execution,” he wrote in March 3 report.

Thanks to growth in nearly every country it operates in, the company no longer looks expensive. The company’s EBITDA and earnings per share compound annual growth rate is at 12% and 18% respectively, which is in line with its peers.

Going forward, growth should continue as the auto sector keeps recovering. The company will likely use its free cash flow, which is strong, says Archambault, for share buybacks. He thinks the company could repurchase $2 billion of its shares over the next two years.

The company is currently trading at $105, but he thinks it could hit $112 over the next 12 months.