Dividend-News

Magna International: This 3.9%-Yielding Stock Should Have Enough Liquidity To Weather The Storm

Published Thu, 21 May 2020 15:07:06 -0400 on Seeking Alpha

Magna is a global leading supplier of auto components.
The outbreak of COVID-19 may significantly reduce the demand for its products in 2020 and 2021.
However, Magna should have enough liquidity to help it weather the storm.
The company is trading at an attractive valuation.
Investment Thesis
Magna International (MGA) is facing significantly uncertainties due to the outbreak of COVID-19. Although many of its manufacturing facilities have returned to fully operational or are gradually restarting, its 2020 sales may be impacted negatively due to weak demand. Fortunately, Magna has a strong balance sheet with enough liquidity to go through this stormy environment. Magna is currently attractively valued and pays a 3.9%-yielding dividend. We think this is a stock that is suitable for investors willing to ride out some short-term volatilities.

Data by YCharts
Recent Developments: Q1 2020 Highlights
Magna delivered a good Q1 2020 especially considering the headwind it faced due to COVID-19 that happened towards the end of Q1. The company saw its sales declined by 18% year over year to $8.7 billion. Its adjusted EBITDA declined sharply to $403 million in Q1 2020 from $720 million in Q1 2019. As a result, its adjusted EPS was $0.86 per share in Q1 2020. This was much lower than last year's $1.63 per share.

Source: Q1 2020 Press Release
Earnings and Growth Analysis
COVID-19 is creating significant headwinds
The outbreak of COVID-19 has caused a major disruption to auto sectors as demand has been depressed due to extensive lockdowns in many regions globally. In fact, IHS Markit forecasts that auto sales will decline by about 22% year over year in 2020. Indeed, this is what Magna experienced in Q1 2020. Its production facility is now fully operational in China. However, demand still remains weak, though management noted that they are seeing encouraging signs in China. In Europe, some production has been restarted. North America is... Read more