I do not own this stock of Magna International Inc (TSX-MG, NYSE-MGA). Magna is a stock I have tracked for some time. I have always liked Frank Stronach, the entrepreneur who used to run this company. Manufacturing firms are fairly risky and it is not the sort of company I usually buy.
When I was updating my spreadsheet, I noticed that analyst’s expectation of Revenue for 2020 was $32,007, but the Revenue in 2020 was a bit higher at $32,647. However, they have now lowered their expectation for 2021 and 2022 to $35,973 and $39,874 from $37,796 and $40,023. The same thing happened to EPS. The expected EPS for 2020 was $1.98, but it came in at $2.52. However, they still lowered their estimates for 2020 and 2021 to $4.54 and $6.77 from $5.66 and $7.22.
| Item | Years | 2020 | 2021 | 2022 | 2023 |
|---|---|---|---|---|---|
| Revenue | In 2020 | $32,007 | $37,796 | $40,023 | |
| Revenue | In 2021 | $32,647 | $35,973 | $39,874 | $44,892 |
| EPS | In 2020 | $1.98 | $5.66 | $7.22 | |
| EPS | In 2021 | $2.52 | $4.54 | $6.77 | $10.10 |
The dividend yields are moderate with dividend growth moderate. The current dividend yield is moderate (2% to 4%) at 2.15%. The 5 and 10 year dividend yields are also moderate at 2.49% and 2.29%. The historical median dividend yield is low (below 2%) at 1.90%. The dividend growth is moderate (8% o 14% ranges) at 12.28% per year over the past 5 years. The last dividend increase was low (below 8%) at 7.5% and it was for 2021.
If the company increases the dividend at the same rate as they used per year over the past 5 years of 12.28%, then in 25 years’ time, the dividend yield on your original investment would be at 39.62% assuming current starting dividend of $2.18 CDN$.
| Div Yd | Div | Years | At IRR | Div Inc |
|---|---|---|---|---|
| 3.91% | $3.89 | 5 | 12.28% | 78.42% |
| 6.98% | $6.93 | 10 | 12.28% | 218.33% |
| 12.45% | $12.37 | 15 | 12.28% | 467.96% |
| 22.21% | $22.07 | 20 | 12.28% | 913.34% |
| 39.62% | $39.37 | 25 | 12.28% | 1707.98% |
Also, assuming the same dividend increases for the future, your initial cost would be covered 93.72% based on current stock cost of $99.36 CDN$.
| Div Pd | Cost | Years | At IRR | Div Cov |
|---|---|---|---|---|
| $13.91 | $99.36 | 5 | 12.28% | 14.00% |
| $34.84 | $99.36 | 10 | 12.28% | 35.07% |
| $72.19 | $99.36 | 15 | 12.28% | 72.65% |
| $93.12 | $99.36 | 20 | 12.28% | 93.72% |
| $130.47 | $99.36 | 25 | 12.28% | 131.31% |
The Dividend Payout Ratios (DPR) are fine. The DPR for EPS for 2020 was 63% with 5 year coverage at 25%. The DPR for EPS is expected to be lower in 2021 at 38%. The DPR for Cash Flow per Share for 2020 was 18% with 5 year coverage at 13%. The DPR for Free Cash Flow for 2020 was 21% with 5 year coverage at 22%.
Debt Ratios are fine. The Long Term Debt/Market Cap Ratio for 2020 is 0.19 and is low and good. The Liquidity Ratio for 2020 is low at 1.37, but if you add in Cash Flow after dividends it is good at 1.63. The Debt Ratio for 2020 is good at 1.69. The Leverage and Debt/Equity Ratios are fine at 2.52 and 1.49.
The Total Return per year is shown below for years of 5 to 32 to the end of 2020 in CDN$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 12.28% | 12.36% | 9.93% | 2.43% |
| 2010 | 10 | 24.97% | 15.63% | 13.25% | 2.38% |
| 2005 | 15 | 10.71% | 11.94% | 10.36% | 1.58% |
| 2000 | 20 | 7.67% | 11.03% | 9.24% | 1.79% |
| 1995 | 25 | 10.25% | 9.13% | 7.60% | 1.52% |
| 1990 | 30 | 12.47% | 14.68% | 11.95% | 2.73% |
| 1987 | 32 | 9.25% | 13.83% | 11.33% | 2.50% |
The Total Return per year is shown below for years of 5 to 32 to the end of 2020 in US$. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 12.70% | 14.30% | 11.79% | 2.52% |
| 2010 | 10 | 22.52% | 12.77% | 10.54% | 2.23% |
| 2005 | 15 | 10.06% | 11.37% | 9.56% | 1.80% |
| 2000 | 20 | 8.55% | 12.15% | 10.02% | 2.13% |
| 1995 | 25 | 10.56% | 9.19% | 7.58% | 1.61% |
| 1990 | 30 | 12.10% | 14.05% | 11.50% | 2.55% |
| 1987 | 35 | 9.08% | 13.52% | 11.08% | 2.44% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 7.13, 8.55 and 9.96. The corresponding 10 year ratios are 7.39, 9.37 and 10.69. The corresponding historical ratios are 7.97, 11.44 and 12.54. The current P/E Ratio is 17.29 based on a stock price of $99.36 and EPS estimate for 2021 of $5.75 ($4.54 US$). The current ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. This testing is done in CDN$.
I get a Graham Price of $80.09. The 10 year low, median, and high median Price/Graham Price Ratios are 0.61, 0.79 and 0.61. The current P/GP Ratio is 1.24 based on a stock price of $99.36. This ratio is above the high of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. This testing is done in CDN$.
I get a 10 year median Price/Book Value per Share Ratio of 1.54. The current P/B Ratio is 1.98 based on a Book Value of $11,782M, Book Value per Share of $39.18 and a stock price of $78.48. The current ratio is 29% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. This testing is done in US$. You will get a similar result in CDN$.
I get a 10 year median Price/Cash Flow per Share Ratio of 5.05. The current P/CF Ratio is 9.15 based on Cash Flow per Share estimate for 2021 of $8.48 and a stock price of $78.48. The current ratio is 81% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. This testing is done in US$. You will get a similar result in CDN$.
The CFPS estimate for 2021 of 8.48 is a drop of 22%. The 2022 CFPS is higher at 12.10. The 2022 P/CF Ratio is 6.41 based on Cash Flow per Share estimate for 2021 of $12.10 and a stock price of $78.48. The current ratio is 27% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. This testing is done in US$. You will get a similar result in CDN$.
I get an historical median dividend yield of 1.99%. The current dividend yield is 2.22% based on a stock price of $78.48 and dividends of $1.72. The current dividend yield is 11% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median. This testing is done in US$. You will get a similar result in CDN$.
I get an historical median dividend yield of 2.33%. The current dividend yield is 2.22% based on a stock price of $78.48 and dividends of $1.72. The current dividend yield is 5% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median. This testing is done in US$. You will get a similar result in CDN$.
The 10 year median Price/Sales (Revenue) Ratio is 0.44. The current P/S Ratio is 0.65 based on a stock price of $78.48 and Revenue estimate for 2021 of $35,973M, and Revenue per Share of $119.61. The current ratio is 48% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive. This testing is done in US$. You will get a similar result in CDN$.
Because there is a 10% drop in expected Revenue for 2021, I will also look at 2022. The 10 year median Price/Sales (Revenue) Ratio is 0.44. The 2022 P/S Ratio is 0.59 based on a stock price of $78.48 and Revenue estimate for 2021 of $39,874M, and Revenue per Share of $132.58. The current ratio is 33% above the 10 year median. This stock price testing suggests that the stock price is relatively expensive. This testing is done in US$. You will get a similar result in CDN$.
Results of stock price testing is that the stock price could be reasonable but on the top end of the reasonableness range. The Dividend Yield testing is showing that the stock price is either reasonable and below the median or above the median. However, the P/S Ratio testing is showing the stock price as relatively expensive. All the other tests are showing the stock price as expensive.
I look at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below you can see that the beginning Dividend Yield for good returns maybe a bit high. The beginning P/E Ratio and P/S Ratios today are generally higher than for good yields in the past. There are exceptions in the past, like year 25 for P/S Ratio and P/E Ratios and year 10 for Dividend Yield.
In the following chart the total return for the 10 years to December 31, 2020 is 15.63% per year. The beginning yield was at 0.84%, and the P/E Ratio and the P/S Ratio were at 12.49 and 0.53. Does this chart change my opinion of the stock price? Not really.
| # Years | Total Ret | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | 12.36% | 8.30 | 0.51 | 2.03% |
| 10 | 15.63% | 12.49 | 0.53 | 0.84% |
| 15 | 11.94% | 12.21 | 0.35 | 2.11% |
| 20 | 11.03% | 6.51 | 0.31 | 2.96% |
| 25 | 9.13% | 17.77 | 1.16 | 1.20% |
| 30 | 14.68% | -1.55 | 0.22 | 1.92% |
| 32 | 13.83% | 16.97 | 0.27 | 4.04% |
| current | 17.29 | 0.66 | 2.19% |
Is it a good company at a reasonable price? The current price could be reasonable. This has been a good investment for shareholders in the past. Both the Total Return and the dividend income has been good. There will be some volatility in both the stock price and earnings.
When I look at analysts’ recommendations, I find Strong Buy (8), Buy (7), Hold (3) and Underperform (1). The consensus would be a Buy. The 12 month stock price of $119.76 ($94.60 US$). This implies a total return of 22.73% with 20.54% from capital gains and 2.19% from dividends based on a current stock price of $99.36.
Analysts on Stock Chase like this stock. One says buy on weakness. Amy Legate-Wolfe on Motley Fool says to invest in Magna if you want to invest in EV at a lower risk. Puja Tayal Motley Fool says Magna is one of his top picks for December 2021. A writer from Simply Wall Street on Yahoo Finance talks about insider Anton Mayer buying shares. There is a Zacks Equity Research paper on Yahoo Finance talking about this stock.
Magna International automotive supplier's product groups include exteriors, interiors, seating, roof systems, body and chassis, powertrain, vision and electronic systems, closure systems, electric vehicle systems, tooling and engineering, and contracted vehicle assembly. Roughly half of Magna's revenue comes from North America while Europe accounts for approximately 44%. Its web site is here Magna International Inc.
The last stock I wrote about was about was Methanex Corp (TSX-MX, NASDAQ-MEOH) ... learn more. The next stock I will write about will be Richards Packaging Income Fund (TSX-RPI.UN, OTC-RPKIF) ... learn more on Wednesday, December 15, 2021 around 5 pm. Tomorrow on my other blog I will write about Buy Now, Pay Later.... learn more on Tuesday December 14, 2021 around 5 pm.
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