Magna International Inc. (MGA) designs, engineers, and manufactures components, assemblies, systems, subsystems, and modules for original equipment manufacturers of vehicles and light trucks worldwide. The company operates through four segments: Body Exteriors & Structures; Power & Vision; Seating Systems; and Complete Vehicles. On the other hand, Aptiv PLC designs (APTV), manufacturers, and sells vehicle components worldwide. In addition, it provides electrical, electronic, and safety technology solutions to the automotive and commercial vehicle markets. It operates through two segments: Signal and Power Solutions; and Advanced Safety and User Experience.
As governments worldwide are reinstating lockdown and social distancing measures to limit the spread of the highly transmissible Delta variant of the coronavirus, people have again started avoiding public transportation. Since the semiconductor chip shortage leads to rising prices for new cars, people are getting their old cars fixed or buying used cars. This is leading to increasing demand for aftermarket auto parts and accessories. According to a Precedence Research report, the global automotive aftermarket is expected to expand at a CAGR of 4.61% from 2021 to 2027.
MGA has gained 10.4% over the past six months, while APTV returned 8.5%. However, APTV’s 22.5% gain year-to-date are higher than MGA’s 19.2% return. Moreover, APTV is the clear winner with a 90.4% gain versus MGA’s 73.1% in terms of the past year’s performance.
But which of these two stocks is a better buy now? Let’s find out.
On July 28, 2021, MGA and LG Electronics signed a transaction agreement establishing a joint venture between the two companies. The new company, which is to be called LG Magna e-Powertrain, is headquartered in Incheon, South Korea. This new company is expected to integrate MGA’s and LG’s electric powertrain strengths to accelerate e-drive component development.
On August 5, 2021, Kevin Clark, APTV’s president, and CEO said, “Moving forward, I am confident that the benefits of our flexible and sustainable business model, our track record of innovation and execution, and our strong balance sheet will continue to create value for all of our stakeholders.”
Recent Financial Results
MGA’s sales increased 110.4% year-over-year to $9.03 billion for the fiscal second quarter that ended June 30, 2021. The company’s adjusted EBIT came in at $557 million compared to a loss of $600 million in the prior-year period. Its adjusted EPS came in at $1.40 compared to a loss per share of $1.71 in the year-ago period.
APTV’s revenue increased 94% year-over-year to $3.8 billion for the fiscal second quarter that ended June 30, 2021. The company’s adjusted EBITDA came in at $498 million compared to a loss of $49 million in the prior-year period. Its adjusted EPS came in at $0.60 compared to a loss per share of $1.10 in the year-ago period.
Past and Expected Financial Performance
MGA’s total assets grew at a CAGR of 3.1% over the past three years. Analysts expect the company’s revenue to increase 25.5% in fiscal 2021 and 8.1% in fiscal 2022. Its EPS is expected to grow 91.9% in fiscal 2021 and 22.2% in fiscal 2022. Moreover, its EPS is expected to grow at a rate of 40.8% per annum over the next five years.
On the other hand, APTV’s total assets grew at a CAGR of 11.6% over the past three years. The company’s revenue is expected to increase 20.1% in the current year and 13.3% next year. Its EPS is expected to grow 92.8% in fiscal 2021 and 36.9% in fiscal 2022. Also, APTV’s EPS is expected to grow at a rate of 43.7% per annum over the next five years.
MGA’s trailing-12-month revenue is 2.46 times what APTV generates. APTV is more profitable with a gross profit margin and net income margin of 16.47% and 3.80%, compared to MGA’s 14.24% and 3.25%, respectively.
However, MGA’s ROE, ROA, and ROTC of 9.27%, 4.17%, and 6.87% compare favorably with APTV’s 8.27%, 3.83%, and 5.28%, respectively.
In terms of forward non-GAAP P/E, APTV is currently trading at 42.31x, 277.1% higher than MGA’s 11.22x. Moreover, APTV’s forward EV/EBITDA ratio of 26.41x is 223.2% higher than MGA’s 8.17x.
So, MGA is the more affordable stock.
MGA has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. On the other hand, APTV has an overall grade of C, which translates to a Neutral rating. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Both MGA and APTV have a B grade for Growth, consistent with their impressive revenue and EPS growth estimates. In addition, both the stocks also have a B grade for Momentum. This is justified given MGA’s 52.4% gain over the past nine months and 10.4% return over the past six months, and APTV’s 8.5% gain over the past six months and 11.7% return over the past three months.
MGA has a B grade for Value as well, consistent with its forward non-GAAP PEG of 0.51x, 55.4% lower than the industry average of 1.14x. However, APTV has a D grade for Value, in sync with its forward non-GAAP PEG of 2.26x, 97.5% higher than the industry average of 1.14x.
Of the 67 B-rated Auto Parts industry stocks, MGA is ranked #12, while APTV is ranked #45.
With the increasing demand for aftermarket parts to repair and upgrade old vehicles amid the resurgence of COVID-19 cases, the auto part sector is expected to grow significantly in the near term. While both MGA and APTV are expected to benefit, it is better to bet on MGA now because of its relatively lower valuation.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Auto Parts industry here.
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MGA shares were trading at $83.63 per share on Friday afternoon, down $0.77 (-0.91%). Year-to-date, MGA has gained 18.12%, versus a 19.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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