Magna (MGA) to Divest Fluid Pressure & Controls Business

Magna International Inc. MGA announced that its Powertrain unit inked a deal to divest its global Fluid Pressure & Controls (“FP&C”). For this divestiture, the company signed an agreement with Hanon Systems, a global supplier of thermal and energy management systems based in South Korea, for $1.23 billion.

With this divestiture, the Powertrain division of Magna, which is the leading manufacturer and supplier of automotive components, is going to focus more on becoming full-system supplier of transmission and other driveline-related systems.

FP&C under Magna — with about 4,200 employees — designs, manufactures, and supplies mechanical and electronic pumps, cooling fans, and other components.  In 2017, FP&C generated sales of $1.4 billion.

Magna’s shareholders are likely to gain from the divestiture of FP&C. This transaction is likely to add to the value of Hanon Systems’ shareholders. Subject to the satisfaction of certain customary closing conditions, the transaction is likely to close in first-quarter 2019.

Over the past year, shares of Magna outperformed the industry it belongs to. Over the time frame, shares of the company have gained 5%, whereas the industry declined 3.7%. Further, Magna has an expected long-term growth rate of 8.5%.

Zacks Rank & Stocks to Consider

Magna currently carries a Zacks Rank #4 (Sell). A few better-ranked stocks in the auto space are Fox Factory Holding Corporation FOXF, Allison Transmission Holdings, Inc. ALSN and Oshkosh Corporation OSK. While Fox Factory and Allison Transmission sport a Zacks Rank #1 (Strong Buy), Oshkosh carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fox Factory has an expected long-term growth rate of 16.8%. Over a year, shares of the company have soared 68.8%.

Allison Transmission has an expected long-term growth rate of 10%. Over the past year, shares of the company have surged 47.8%.

Oshkosh has an expected long-term growth rate of 18.3%. Over the past three months, shares of the company have risen 9.4%.

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