Magna Still Not in the Driver's Seat
Global scale and record of innovation fall short in providing this auto parts supplier with an economic moat.
Magna International (MGA) does many of the things that we like to see from suppliers in order to generate economic profit. And last month when we attended the Magna's analyst day in Brampton, Ontario, the company highlighted two themes that we view as being requisite for an investment in an auto supplier stock--global presence and innovation.
Even so, there is a disconnect between what Magna says and what shows up in its results. Other than 2010, Magna has not shown significant excess returns on invested capital over its weighted average cost of capital since 2005. In recent years, the company has generated subpar returns in all regions. But more recently, North America and other world regions including Asia have improved, while Europe has been a substantial drag on profits. We were hoping to hear more definitive plans to turn around Europe’s performance, but the company offered no specifics other than it is continuing efforts to restructure there.
Richard Hilgert does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.