Magna International Inc (NYSE:) designs and manufactures auto parts for vehicles and light trucks worldwide.

The company operates through four segments: Body Exteriors & Structures, Power & Vision, Seating Systems, and Complete Vehicles. It is sensitive to economic cycles and therefore cyclical.

Therefore, earnings and revenue tend to fluctuate along with the economy. The company’s long-term returns have been solid for investors. However, in the short term we are neutral. TipRanks has Magna stock charts.

Efficiency Analysis

Large companies such as Magna need to carry a lot of inventory in order to satisfy customer demand. It can be very expensive to store billions worth of inventory.

In order to forecast success, it is crucial that a company’s ability to move inventory quickly and turn it into cash. To measure Magna’s efficiency, we will use the cash conversion cycle, which shows how many days it takes to convert inventory into cash. It is calculated as follows:

CCC = Days Inventory Outstanding + Days Sales Outstanding – Days Payables Outstanding

39 = 42 + 55 – 58

Therefore, it takes 42 days for Magna to move inventory, and it’s able to convert it into cash in 39 days. Interesting to notice is that cash conversion rates and days inventory remaining have increased over the past 10 year.

Valuation

We consider Magna as an old school value play because it trades at a low multiple, and has a significant amount of tangible assets. Magna’s book value will therefore be used to value it. The company’s current price to book value stands at 1.85. The justified price to book value will be determined. To do so, we will use the following formula:

Justified P/B = (ROE – Growth) / (Discount Rate – Growth)

For return on equity, we will use Magna’s five-year average which is 17.4%.

The company’s growth rate will be the annual rate of increase. It is reasonable to assume that it will be equal to nominal GDP growth. We set this to 3.52%. The expected GDP growth rate (the most optimistic forecast) for 2026 was used to arrive at the number.

We will use 9.5% for the discount rate. The result is as follows:

Justified P/B = (0.174 – 0.0352) / (0.095 – 0.0352)

Justified P/B = 2.32

Therefore, Magna is currently undervalued.

Wall Street’s Take

Turning to Wall Street, Veeva has a Moderate Buy consensus rating, based on seven Buys, one Hold, and zero Sells assigned in the past three months. Magna’s average price target is $109.83, which implies a potential upside of 40.6%.

Final Thoughts

Magna International is a classic value stock that has the potential for a lot of upside. The stock has a beta value of 1.55.

Although the stock is in a downward trend since June, it was still within the uptrend of the market for the majority of the time. The stock could still experience further downside, despite the fact that the market is poised to see a correction of 10% from its peak and Magna remaining in a downtrend.

Stock Bros Research had no position at the time this article was published.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks cannot guarantee the reliability, completeness or accuracy of any information. This article is not intended to be interpreted as an offer or recommendation for the purchase or sale of securities. The article does not provide legal, financial, investment, or professional advice. It also doesn’t take into consideration the individual needs or requirements. Neither is the information contained in it a complete or comprehensive statement about the subject or issues discussed. TipRanks or its affiliates are not responsible for the contents of this article. Any action you take based on the information is your responsibility. TipRanks’ or any affiliates does not endorse this article or make it a recommendation. The past performance of TipRanks or its affiliates is not an indication of future prices, results, or performances.