UBS Securities Canada Inc. has fine-tuned its third quarter and 2005 estimates for the Canadian auto parts suppliers sector to reflect a number of factors, including rising materials costs and downward revisions to estimates of light vehicle sales and production.
Analyst Fadi Chamoun, who has a "neutral" rating on the sector, warned in his third-quarter preview that steel costs remain an area of uncertainty and could lead to profit disappointments in the third quarter.
He also noted that General Motors Corp.'s output of full-sized trucks in the third quarter was down 12 per cent from a year earlier. That too has also tempered profit growth at suppliers such as Magna International Inc. and Tesma International Inc., he said.
Mr. Chamoun also nudged down his 2004 forecast for Magna to $7.05 a share from $7.10 and for 2005, to $7.65 from $8.
He believes that Magna will be able to generate 9-per-cent growth in profit next year, despite the higher steel prices and reduced production of full-sized trucks, thanks to new vehicle launches and the contribution from New Venture Gear Inc.
Magna recently acquired New Venture Gear, a transmission parts maker from DaimlerChrysler AG. He also lowered share profit forecasts slightly for Tesma, Decoma International Inc. and Linamar Corp.
Magna is his pick in the sector in Canada, while Dana Corp. and ArvinMeritor Inc. are the U.S. choices. All three are rated as "buys."
