Slacker demand from automakers caused revenue to drop 0.2% during the most-recent quarter, but the company is pivoting to the expanding EV market. In fact, EV-related orders accounted for 72% of its new business wins.
Meanwhile the stock trades at just 9.4 times the company’s 2022 earnings forecast.
LINAMAR CORP. (Toronto symbol LNR; www.linamar.com) makes a variety of automotive parts, including cylinder heads and cylinder blocks. It also makes self-propelled, scissor-type work platforms under the Skyjack brand as well as agricultural harvesting equipment.
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Carmakers continue to cut their production due to shortages of computer chips. That has hurt demand for Linamar’s products. However, demand for construction-related products continues to improve.
To cut its exposure to automakers, Linamar acquired the MacDon Group of Companies for $1.2 billion in February 2018. Based in Winnipeg, that firm makes agricultural harvesting equipment. Linamar merged those operations with its agricultural business in Hungary.
Thanks to that purchase, Linamar’s sales gained 26.9%, from $6.01 billion in 2016 to $7.62 billion in 2018. The new operations also lifted earnings before unusual items over those three years by 15.3%, from $7.65 a share (or a total of $503.9 million) to $8.82 a share (or $583.8 million).
However, sales fell 2.7% to $7.42 billion in 2019 on a six-week strike at General Motors’ U.S. plants. Those disruptions also caused Linamar’s earnings to drop 19.7%, to $7.08 a share (or $464.4 million). Due to COVID-19 shutdowns, sales in 2020 fell a further 21.6% to $5.82 billion. Earnings dropped 32.1%, to $4.81 a share (or $314.6 million).
Value Stocks: A shift toward EVs makes the future brighter
As a result of slackening demand from automakers, Linamar’s sales in the quarter ended March 31, 2022, fell 0.2%, to $1.778 billion from $1.781 million a year earlier. That beat the consensus forecast of $1.66 billion.
Sales of automotive equipment (79% of the total) declined 1.7% as carmakers slowed their production. Sales of industrial products (21%) gained 5.7%.
Earnings before unusual items in the quarter dropped 55.2%, to $1.08 from $2.41. That still topped the consensus estimate of $1.01.
Linamar has acquired the 50% of a joint venture with Georg Fischer AG that it doesn’t already own. It now owns 100% of this business, which makes lightweight automotive components such as door frames and cross car beams at a plant in Mills River, North Carolina.
The company has not yet said how much it paid for this stake. However, this business’s sales totalled $120 million U.S. in 2021. That’s equal to 2% of Linamar’s total 2021 revenue of $6.54 billion (Canadian).
The purchase helps cut the company’s reliance on powertrain components like transmissions and driveshafts. It will also help it tap into rising demand for lightweight components as carmakers shift to electric-powered vehicles.
That’s why Linamar’s long-term outlook remains bright, particularly as it continues to win new contracts for electric-powered vehicles (EVs). In the latest quarter, EV-related orders accounted for 72% of its new business wins.
The company will probably earn $5.88 a share in 2022, and the stock trades at just 9.4 times that forecast. The $0.80 dividend looks safe and yields 1.4%.
Wondering what the summer downturn usually is, compared with current % downwards.
Also, vast reversals day to day.eg gold up, everything down, or the reverse. Rising interest rates and recession. What dates do summer sales usually kick in and is there a huge downswing annually under normal circumstances. Thanks.
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Wondering what the summer downturn usually is, compared with current % downwards.
Also, vast reversals day to day.eg gold up, everything down, or the reverse. Rising interest rates and recession. What dates do summer sales usually kick in and is there a huge downswing annually under normal circumstances. Thanks.