The previous couple of years have been troublesome for the manufacturing firm Linamar (TSX:LNR) as COVID lowered the demand for its extremely engineered merchandise, corresponding to auto elements and industrial-strength entry lifts.
Even because the financial system has reopened, increased commodity prices, provide chain constraints, rising freight and labor bills, and lowered 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.
Development ought to return to the commercial phase
Linamar’s industrial phase makes agricultural tools and entry tools corresponding to scissor lifts. Regardless of sturdy demand for the corporate’s merchandise, the availability chain and labor constraints restricted the corporate’s capability to ship in agriculture. Increased commodity and transport prices additionally remained a drag.
Though these elements are prone to hold 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 gain advantage from stable 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 progress.
Electrical autos 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 elements.
Nonetheless, rising gentle automobile volumes and anticipated enchancment in semiconductor provide within the second half of the yr augur properly for progress. Nevertheless, what stands proud as an actual alternative is the continuing electrification tendencies within the automotive sector. Electrical autos proceed to supply stable multi-year progress alternatives for the corporate and develop its addressable market.
It’s value noting that Linamar introduced document new enterprise wins in 2021. Of these, about 20% had been for electrical autos. Furthermore, the greenback worth of those annualized gross sales is about 50% increased than the prior-year interval.
Low valuation and stable steadiness sheet recommend upside
Many high TSX shares are feeling stress within the present market downturn, together with Linamar. It’s value 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 — under the historic common and properly inside traders’ attain.
Linamar’s capability to generate sturdy money flows has helped the corporate considerably scale back its debt and turn into internet debt-free. Its low debt and stable steadiness sheet place it properly to speed up its progress via acquisitions.
Linamar Seems to be Like a Deal In the present day
Regardless that ongoing challenges might curb the upside in Linamar within the brief time period, the inventory seems like a wise purchase to me right this moment because of the corporate’s sturdy progress alternatives throughout its enterprise segments, document new enterprise wins, sturdy steadiness sheet, opportunistic acquisitions, and bettering price headwinds.
Lastly, Linamar inventory is buying and selling low-cost, offering long-term traders an excellent alternative at latest costs.