Novice Investing - Magna Makes My Day

Date: Tuesday 13th 2008f May 2008 07:24:22 AM

Magna Makes My Day - 05/02/2006

By: Hari Wibowo

About one year ago, we recommend adding Magna International (MGA) to our sample portfolio. At the time, we expect Magna Earning per Share (EPS) for 2005 to top $ 6.10 while other analysts on average predict $ 6.87. Even with EPS of $ 6.10, Magna was still relatively undervalued with fair value estimated at $105.16 per share. I still feel the same way but for once, let us look how Magna was doing for the fiscal year 2005. By the way, you can read our predictions for Magna by clicking here.

Surprise surprise... Magna did everything different than we predicted, except net income! For year 2005, Magna reported net income of $ 639 Million versus our prediction of $ 640 Million. That ain't too bad considering that there are many moving parts within the industry. What has happened during the past year in the auto industry? Both Dana and Delphi has filed for bankruptcy while General Motor reported staggering losses for the year. Despite that, Magna International manages to eke out $ 639 Million of profit or $ 5.86 earning per share. ( We were wrong with the share count too by the way)

As you can see, analysts were too optimistic back in 2005 and they might be too optimistic regarding their EPS estimation ( $ 7.06 ) for 2006. Regardless on who is right, I feel that by using conservative estimate, we can prevent future disappointment. Thus, even when our 2005 EPS estimate ($ 6.10) is a bit higher than Magna's actual performance ($ 5.86), Magna stock manages to rise from our purchase price of $ 62.60 to around $ 75 recently.

So, how about 2006? We predict that Magna continues to churn out profits and for the year, EPS is expected to top $ 6.47 . Click here for the detail of the pro-forma income statement. At this rate, Magna's fair value is more than $ 105.16 predicted last year but we will stick to this for our selling point. Nothing is certain in this world but the best thing we can do is to predict. Finally, as we approach our first year anniversary with Magna, we will update our dividend column as Magna distributes $ 1.52 per share of annual dividend to us, shareholders. Stay tune for tomorrow's earning report. We'll get a first glance on whether $ 6.47 of earning is doable or not.

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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