Novice Investing - Magna Disappoints? Think Not

Date: Tuesday 13th 2008f May 2008 07:34:35 AM

Magna Disappoints? Think Not - 11/14/2005

By: Novice Investing Staff

The press again reported another disappointment for Magna's earning. Why? Because they fail to predict the future, that's why. Wallstreet gave an overly optimistic guidance that we don't feel achievable. For the third quarter, Magna International (MGA) earned a profit of $ 159 Million or $ 1.44 per share. For the first nine months of 2005, Magna has earned $ 5.17 per share. Our estimate for the full year is for a profit of $ 6.10. Looks like the company is still on track to achieve this. This estimate was made back on April of 2005.

Meanwhile, wallstreet mean estimate is still at $ 6.87. We do not say that they are wrong. But they fail to anticipate the difficulty of Magna's customers and the impact of rising commodity costs. Mean estimate has been steadily declining from $ 7.01 ninety days ago to $ 6.87 now. This shows the inconsistency of research analyst.

Looking ahead, they now expect $ 7.48 EPS for fiscal year 2006. Again, we believe that they may overestimate this earning. When the next earning announcement came, the press will again report an earning disappointment for Magna. No, it is not earning disappointment at all. We have predicted all that. The key for estimating EPS is to be conservative.

We will check with you in another three months. Three months ago, we quoted similar 'disappointment' story from Magna. If wallstreet did not adjust its earning estimate with reality, our bet is we will read the same 'disappointment' story three months from now.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Magna International Inc.(MGA) or other securities.

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