TORONTO - Shares of Magna International Inc surged nearly 15 percent on Friday, a day after it posted a surprise quarterly profit and said it would focus on its core auto-parts business after the collapse of its deal to buy a stake in General Motors Co's Opel unit.
Magna, the world's third-biggest auto parts maker, reported its third-quarter results after market close on Thursday and said they benefited from cost cuts, as well as strong sales and margins in North America.
When you look at North America ... we're more in the recovery stage (as compared to Europe), Vince Galifi, Magna's chief financial officer, said in a conference call with analysts.
Volume just started to pick up. We're taking a lot of restructuring and downsizing activities, so if revenue does pick up, we should see some bottom line improvement. Continued improvement.
Analysts had expected a loss of 19 cents a share for the quarter, but the company surprised with a profit of 45 cents a share.
The Canadian company also said it was not in discussions to buy a stake in any other automaker after GM's board reversed its decision to sell a 55 percent stake in German-based Opel to Magna and its Russian backer, Sberbank, for 500 million euros.
GM, which had been in negotiations with Magna for the better part of the year on Opel and had approved the sale, said improved business conditions and the strategic importance of Opel prompted the reversal.
Since GM announced its decision, Magna's share price has vaulted more than 25 percent.
Magna can now return its focus to its Tier 1 operations and potential earnings power in an environment of improving light vehicle sales and abundant market share opportunities for strong suppliers such as itself, Fadi Chamoun, an analyst at UBS, said in a note to clients.
UBS raised its rating on Magna stock to buy from neutral and increased its 12-month price target to $60 from $55.
Magna's shares ended up C$6.69, or 14.2 percent, at C$53.76 on the Toronto Stock Exchange on Friday. Its U.S. shares rose $5.80, or 13.1 percent, to $50.00.
Hitherto, Magna's pursuit of an equity stake in Opel had prevented us from taking a more constructive view on the stock, Chamoun said. The sale has since been terminated by GM, and we believe that a significant overhang has been removed from the shares.
BMO Capital Markets raised its price target for Magna to $70 from $63, and Citigroup increased its target for the company to $60 from $58. CIBC World Markets hiked its price target to $62 from $55. ($1=$1.07 Canadian) (Reporting by John McCrank; editing by Peter Galloway)