The previous couple of years have been troublesome for the manufacturing firm Linamar (TSX:LNR) as COVID diminished the demand for its extremely engineered merchandise, reminiscent of auto components and industrial-strength entry lifts.
Even because the economic system has reopened, increased commodity prices, provide chain constraints, rising freight and labor bills, and diminished authorities subsidy have taken a toll on Linamar’s operations — and its inventory worth. Shares of Linamar have misplaced greater than one-third of their worth this yr.
The macro headwinds might proceed to harm Linamar’s enterprise within the brief time period and restrict the inventory’s upside. However I believe Linamar has a number of progress catalysts forward that help a long-term bullish outlook on the inventory.
Progress ought to return to the economic phase
Linamar’s industrial phase makes agricultural tools and entry tools reminiscent of scissor lifts. Regardless of robust demand for the corporate’s merchandise, the provision chain and labor constraints restricted the corporate’s capability to ship in agriculture. Greater commodity and transport prices additionally remained a drag.
Though these elements are prone to maintain stunting Linamar’s short-term progress, administration is upbeat. It expects to see double-digit progress throughout all areas within the entry market in 2022. Its core merchandise are gaining market share, which ought to flip into stable gross sales.
What’s extra, the lean agriculture stock signifies that Linamar’s ag enterprise may benefit from stable demand. Administration is assured of recouping misplaced gross sales as the provision points ease. A powerful backlog and elevated market share bode properly for future progress.
Electrical automobiles assist speed up the mobility enterprise
A confluence of things, together with semiconductor provide shortages; increased prices related to materials, freight, and labor; and discount within the utilization of presidency help applications took a toll on Linamar’s mobility phase, which makes auto components.
However, rising mild car volumes and anticipated enchancment in semiconductor provide within the second half of the yr augur properly for progress. Nevertheless, what stands out as an actual alternative is the continued electrification traits within the automotive sector. Electrical automobiles proceed to offer stable multi-year progress alternatives for the corporate and develop its addressable market.
It’s price noting that Linamar introduced document new enterprise wins in 2021. Of these, about 20% have been for electrical automobiles. Furthermore, the greenback worth of those annualized gross sales is about 50% increased than the prior-year interval.
Low valuation and stable stability sheet recommend upside
Many prime TSX shares are feeling stress within the present market downturn, together with Linamar. It’s price noting that Linamar inventory is buying and selling at NTM (subsequent 12-month) EV/EBITDA and worth/earnings multiples of three.3 and eight.4 — beneath the historic common and properly inside traders’ attain.
Linamar’s capability to generate robust money flows has helped the corporate considerably cut back its debt and change into internet debt-free. Its low debt and stable stability sheet place it properly to speed up its progress by means of acquisitions.
Linamar Seems Like a Deal Right this moment
Although ongoing challenges might curb the upside in Linamar within the brief time period, the inventory seems like a sensible purchase to me immediately due to the corporate’s robust progress alternatives throughout its enterprise segments, document new enterprise wins, robust stability sheet, opportunistic acquisitions, and enhancing price headwinds.
Lastly, Linamar inventory is buying and selling low cost, offering long-term traders alternative at current costs.