Magna International (TSX:MG) Lands Chery EDrive Win As Valuation Debate Heats Up
Magna International (TSX:MG) is back in focus after announcing an 800V electric drive program award from Chery that will anchor production of next generation eDrive systems at Magna’s new Wuhu facility in China.
See our latest analysis for Magna International.
The Chery eDrive award has landed while Magna International’s share price has climbed to CA$97.91, supported by a 30.51% year to date share price return and a 78.69% total shareholder return over the past year, which points to building momentum around its electrification efforts.
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After a sharp re rating that leaves Magna International trading above the average analyst price target yet at a discount to one estimate of fair value, is the market being too cautious on the electrification ramp, or not cautious enough?
Most Popular Narrative: 8.5% Overvalued
The most followed valuation narrative for Magna International pegs fair value at about CA$90.28, below the last close of CA$97.91, which creates a clear gap for investors to unpack.
Magna International is focusing on operational excellence and restructuring actions, which are expected to result in meaningful margin expansion over the next two years. This is likely to positively impact net margins and earnings.
Curious what kind of earnings rebuild sits behind that margin story. The narrative leans on moderate revenue growth, better profitability and a tighter share count. It is useful to see how those moving parts combine into one valuation path.
Result: Fair Value of CA$90.28 (OVERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Magna International still has to contend with softer vehicle production in key regions, along with ongoing cost and inflation pressures that could challenge those margin ambitions.
Find out about the key risks to this Magna International narrative.
Another Look At Magna International’s Valuation
While the consensus narrative sees Magna International as about 8.5% overvalued at CA$97.91 versus a fair value of CA$90.28, the SWS DCF model points in the other direction. It suggests fair value closer to CA$135.41, implying that the current price sits well below that estimate. Which set of assumptions do you find more reasonable?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Magna International for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 8 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
With mixed signals on Magna International’s valuation, it makes sense to act promptly and test the assumptions that stand out to you. To weigh up both the concerns and the potential upside, start by reviewing the company’s 3 key rewards and 2 important warning signs.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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