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, comparable to auto elements and industrial-strength entry lifts.
Even because the economic system has reopened, larger 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 value. Shares of Linamar have misplaced greater than one-third of their worth this yr.
The macro headwinds may proceed to harm Linamar’s enterprise within the quick time period and restrict the inventory’s upside. However I believe Linamar has a number of development 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 gear and entry gear comparable to scissor lifts. Regardless of sturdy demand for the corporate’s merchandise, the availability chain and labor constraints restricted the corporate’s capacity to ship in agriculture. Greater commodity and transport prices additionally remained a drag.
Though these elements are more likely to hold stunting Linamar’s short-term development, administration is upbeat. It expects to see double-digit development throughout all areas within the entry market in 2022. Its core merchandise are gaining market share, which ought to flip into strong gross sales.
What’s extra, the lean agriculture stock signifies that Linamar’s ag enterprise may gain advantage from strong demand. Administration is assured of recouping misplaced gross sales as the availability points ease. A robust backlog and elevated market share bode properly for future development.
Electrical autos assist speed up the mobility enterprise
A confluence of things, together with semiconductor provide shortages; larger prices related to materials, freight, and labor; and discount within the utilization of presidency help packages took a toll on Linamar’s mobility phase, which makes auto elements.
Nonetheless, rising gentle car volumes and anticipated enchancment in semiconductor provide within the second half of the yr augur properly for development. Nevertheless, what stands proud as an actual alternative is the continuing electrification traits within the automotive sector. Electrical autos proceed to supply strong multi-year development alternatives for the corporate and increase its addressable market.
It’s price noting that Linamar introduced file new enterprise wins in 2021. Of these, about 20% have been for electrical autos. Furthermore, the greenback worth of those annualized gross sales is about 50% larger than the prior-year interval.
Low valuation and strong stability sheet recommend upside
Many prime TSX shares are feeling strain 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 value/earnings multiples of three.3 and eight.4 — under the historic common and properly inside traders’ attain.
Linamar’s capacity to generate sturdy money flows has helped the corporate considerably scale back its debt and change into web debt-free. Its low debt and strong stability sheet place it properly to speed up its development via acquisitions.
Linamar Seems Like a Deal Right this moment
Despite the fact that ongoing challenges may curb the upside in Linamar within the quick time period, the inventory seems like a sensible purchase to me immediately because of the corporate’s sturdy development alternatives throughout its enterprise segments, file new enterprise wins, sturdy stability sheet, opportunistic acquisitions, and bettering price headwinds.
Lastly, Linamar inventory is buying and selling low-cost, offering long-term traders a great alternative at latest costs.