Magna International: The Price And Performance Gap Widens – Magna International Inc. (NYSE:MGA)

The gap between valuation and value widened in shares of Magna Internation (MGA) after its shares plunged over 2.5% despite posting a top-and-bottom-line beat for the quarter and boosting guidance. MGA continued its strong shareholder return program during the quarter, delivering over $484 million to shareholders through share repurchases and dividends in the quarter, reducing float by over 2%. Through its strong performance, the company also maintained its strong financial, profitability and growth metrics, which the market still fails to accurately appraise. DGI, GARP, and Value investors should welcome this development and initiate or add to a stake in the company.

MGA reported record diluted-EPS ($1.48, + 5% year-over-year) and record sales ($9.68 billion, +3% year-over-year) for the quarter, continuing their strong growth record in the face of headwinds in North America and Europe as well as negative currency effects. The one negative in the numbers was the contracting consolidated EBIT margin (down 40 basis points to 8%) due to heavy launch costs and EBITDA profit remained basically flat year-over-year. Additionally, there are ongoing concerns that the automotive industry downturn in North America could negatively impact future growth. However, Magna once again proved its ability to rise above negative headwinds as evidenced by its strong across-the-board market outperformance and its boosted outlook for the remainder of the year. CEO Donald Walker highlighted the company’s market-beating success at the earnings call:

In the second quarter, North American production sales grew 2% over the second quarter of 2016. Our organic sales growth, excluding foreign exchange movements, was 3%. This compares to a 3% decline in the North American light vehicle production or 6% outperformance to the market. European production sales were essentially flat excluding foreign exchange movements and acquisitions compared to a decline of 1% for European light vehicle…

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