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Here's Why Investors Should Avoid Magna (MGA) Stock Right Now
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Magna International Inc. (MGA - Free Report) is facing challenges from lower-than-anticipated vehicle production in Europe, cancellation of programs, discontinued production of Fisker Ocean and hefty investment in technologically advanced products. Let’s find out why this Zacks Rank #4 (Sell) stock should be avoided.
Magna has made a downward revision in its 2024 & 2026 sales and adjusted EBIT margin outlook. Lower-than-anticipated vehicle production in Europe and ceased production of the Fisker Ocean are expected to act as headwinds in 2024, while the cancellation of the Ineos program and pass-through sales of the Mercedes G-class are expected to act as headwinds in 2026. It now expects full-year 2024 revenues in the band of $42.5-$44.1 billion, down from the previous guidance of $42.6-$44.2 billion.
Adjusted EBIT margin in 2024 is now expected in the range of 5.4-5.8%, down from the previous estimate of 5.4-6.0%. It now expects 2026 sales in the range of $44-$46.5 billion, down from the previous estimate of $48.8-$51.2 billion. It expects 2026 adjusted EBIT margin in the range of 6.7-7.4%, down from the previous guidance of 7-7.7%. Rising debt levels are concerning. As of Jun 30, 2024, Magna’s long-term debt increased to $4,863 million from $4,175 million as of Dec 31, 2023. Its debt to capitalization stands at around 29%, higher than the industry’s 23%.
Magna faces a potential growth challenge due to its concentrated customer base. While MGA serves a wide range of prominent OEMs, a substantial portion of sales relies on six major clients — General Motors, BMW, Stellantis, Daimler, Ford and Volkswagen. Given its substantial business with these six customers, opportunities for further growth may be limited. Growth rates vary by region and segment, with significant increases among some EV-focused OEMs. If market share shifts away from top customers and the company cannot compensate with sales growth from other OEMs, its profitability could be adversely affected.
MGA is set to invest heavily in the development of technologically advanced products. While that would indeed create new opportunities for the firm but is likely to strain near-term cash flows. The company envisions capital spending of approximately $2.3-$2.4 billion in 2024. High R&D expenses, engineering and other costs related to advanced driver-assistance systems programs are likely to dent near-term margins.
The consensus estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.71% and 35.46%, respectively. EPS estimates for 2024 and 2025 have improved 51 cents and 37 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.58% and 215.89%, respectively. EPS estimates for 2024 and 2025 have improved 65 cents and 80 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for PLOW’s 2024 earnings suggests year-over-year growth of 60.4%. EPS estimates for 2024 have improved 15 cents in the past 30 days.
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Here's Why Investors Should Avoid Magna (MGA) Stock Right Now
Magna International Inc. (MGA - Free Report) is facing challenges from lower-than-anticipated vehicle production in Europe, cancellation of programs, discontinued production of Fisker Ocean and hefty investment in technologically advanced products. Let’s find out why this Zacks Rank #4 (Sell) stock should be avoided.
Magna has made a downward revision in its 2024 & 2026 sales and adjusted EBIT margin outlook. Lower-than-anticipated vehicle production in Europe and ceased production of the Fisker Ocean are expected to act as headwinds in 2024, while the cancellation of the Ineos program and pass-through sales of the Mercedes G-class are expected to act as headwinds in 2026. It now expects full-year 2024 revenues in the band of $42.5-$44.1 billion, down from the previous guidance of $42.6-$44.2 billion.
Adjusted EBIT margin in 2024 is now expected in the range of 5.4-5.8%, down from the previous estimate of 5.4-6.0%. It now expects 2026 sales in the range of $44-$46.5 billion, down from the previous estimate of $48.8-$51.2 billion. It expects 2026 adjusted EBIT margin in the range of 6.7-7.4%, down from the previous guidance of 7-7.7%. Rising debt levels are concerning. As of Jun 30, 2024, Magna’s long-term debt increased to $4,863 million from $4,175 million as of Dec 31, 2023. Its debt to capitalization stands at around 29%, higher than the industry’s 23%.
Magna faces a potential growth challenge due to its concentrated customer base. While MGA serves a wide range of prominent OEMs, a substantial portion of sales relies on six major clients — General Motors, BMW, Stellantis, Daimler, Ford and Volkswagen. Given its substantial business with these six customers, opportunities for further growth may be limited. Growth rates vary by region and segment, with significant increases among some EV-focused OEMs. If market share shifts away from top customers and the company cannot compensate with sales growth from other OEMs, its profitability could be adversely affected.
MGA is set to invest heavily in the development of technologically advanced products. While that would indeed create new opportunities for the firm but is likely to strain near-term cash flows. The company envisions capital spending of approximately $2.3-$2.4 billion in 2024. High R&D expenses, engineering and other costs related to advanced driver-assistance systems programs are likely to dent near-term margins.
Stocks to Consider
Some better-ranked stocks in the auto space are Dorman Products, Inc. (DORM - Free Report) , Blue Bird Corporation (BLBD - Free Report) and Douglas Dynamics, Inc. (PLOW - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.71% and 35.46%, respectively. EPS estimates for 2024 and 2025 have improved 51 cents and 37 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.58% and 215.89%, respectively. EPS estimates for 2024 and 2025 have improved 65 cents and 80 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for PLOW’s 2024 earnings suggests year-over-year growth of 60.4%. EPS estimates for 2024 have improved 15 cents in the past 30 days.