Magna Earnings: Buyback Announcement Lessens the Pain From Poor Customer Volume

Magna’s third-quarter earnings continue to reflect headwinds of declining customer vehicle production across North America, Europe, and China. Adjusted diluted EPS of $1.28 fell 12.3% year over year and missed the $1.40 LSEG consensus. However, the stock rose over 6% during Nov. 1 trading due to the company announcing a long-awaited share repurchase program that is expected to commence around Nov. 7. It will expire one year later and is for up to about 28.5 million shares, or about 10% of the company. Management indicated the buyback’s timing is accelerated from earlier plans, which to us reflects the team recognizing investor frustration and supports August earnings call comments from the CEO that a buyback is the best use of capital. We like the move a lot as Magna keeps a conservative leverage ratio and its stock is well below our fair value estimate. Despite the buyback, lower 2024 guidance causes a slight reduction in our fair value estimates to $62 from $64 and CAD 87 from CAD 89.