With a recent 8.3% revenue and 6.3% earnings rise as well as projected earnings growth ahead, Linamar’s stock is trading at an exceptionally low price-to-earnings ratio of 5.5 times forward earnings. This valuation suggests that the market may be underestimating the company’s growth potential and financial strength.
That growth potential arises from an expanding presence in EV and agricultural markets, leveraged automotive expertise in the marine industry, and a $1.1 billion expansion plan for its Ontario operations with a focus on new propulsion and battery systems for a variety of motors.
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.
As automakers shift from gasoline-powered cars to electric vehicles (EVs), Linamar has completed several acquisitions to enhance its expertise. Those include its August 2023 purchase of three plants, one in Alabama and two in Eastern Europe (Czechia and North Macedonia) for $318.9 million. All three facilities produce battery enclosures and trays for EVs.
As well, in October 2023, the company paid $64.0 million U.S. for the U.S.-based manufacturing operations of Mobex Fourth and 1, LLC. Those businesses make various components for gasoline and EVs, including steering knuckles, control arms and subframes.
Linamar is also expanding its agricultural equipment businesses. In February 2024, it paid $621.7 million for Bourgault Industries Ltd. of St. Brieux, Saskatchewan. That firm makes a variety of agricultural products, including equipment for ploughing and seeding.
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Linamar continues to apply its automotive expertise to other products.
For example, the company, through its McLaren Engineering subsidiary, is extending its alliance with Honda Marine.
The two companies will now jointly develop and sell high-powered outboard motors for large fishing and pleasure boats. McLaren’s technology will help improve the fuel efficiency and cut harmful emissions of these motors.
Value Stocks: Linamar’s undervalued shares present opportunity in next-gen technologies
Linamar has also announced that it will spend $1.1 billion to upgrade and expand its automotive parts operations in Ontario. The federal and provincial governments will cover $269.7 million (or 25%) of those costs.
These investments will help Linamar research and develop new propulsion and battery systems that work on multiple types of vehicles, whether powered by gasoline, electricity or hybrid motors. That will help Linamar better match its products with consumer demand, particularly as governments drop or delay their EV (electric vehicle) mandates.
Linamar’s operations in Canada and Mexico are major suppliers to automotive plants in the U.S. A 25% tariff would probably force those customers to slow or shut down their assembly lines if they are unable to pass along those higher costs to car buyers. As well, replacing Linamar’s products with U.S.-based suppliers would entail considerable time and costs.
The company has also expanded outside of Canada in the past few years (see above).
Note—Canada remains Linamar’s biggest market, accounting for 55% of its revenue, followed by other parts of North America (17%), Europe (21%) and Asia (7%).
Meanwhile the company’s new businesses, including the Bourgault Industries acquisition, helped lift its revenue in the three months ended September 30, 2024, by 8.3%, to $2.64 billion from $2.43 billion a year earlier. Sales of automotive equipment (68% of the total) improved 2.1%, while sales of industrial products (32%) gained 24.3%.
Earnings before unusual items also rose 6.3%, to $2.35 a share (or a total of $144.6 million) from $2.21 a share (or $136.3 million).
Linamar’s earnings are forecast at $9.57 a share in 2025, and the stock trades at just 5.5 times that forecast. The $1.00 dividend looks safe and yields 1.9%.
Recommendation in The Successful Investor: Linamar Corp. is a buy.
