Magna Shares Up on Chrysler Speculation

Associated Press | Shares of Magna International Inc. rose Monday on analyst optimism about the potential benefits the Canadian auto supplier could reap by acquiring a stake in DaimlerChrysler AG's Chrysler unit.

In midday trading, Magna's U.S. shares were up $1.96, or 2.6 percent, to $78.74 on the New York Stock Exchange, after peaking at $79.23 earlier in the day. Over the past 52 weeks, Magna shares have traded between $68.40 and $83.35.

Patrick Archambault of Goldman Sachs (nyse: GS - news - people ) upgraded Magna to "Neutral," removing it from the investment bank's Americas Sell List.

Archambault said the move reflects the effects of the possible Chrysler stake and lower overall analyst expectations for Magna's core operations. He estimated that Magna would take a 30 percent stake in Chrysler, if its bid succeeds.

DaimlerChrysler (nyse: DCX - news - people ) said in February that it was considering all options for the struggling U.S. unit.

General Motors Corp. (nyse: GM - news - people ) was reportedly interested in making a bid for Chrysler, but recently the focus has been on Magna and two private equity groups, Cerberus Capital Management LP and a consortium of investors led by Blackstone Group.

Billionaire investor Kirk Kerkorian, who tried to take control of Chrysler in the 1990s, has made a $4.5 billion bid. DaimlerChrysler, however, reportedly has not set up any meetings with Kerkorian's Tracinda Corp.

Archambault said he expects Chrysler to be sold debt free and that there's a potential that DaimlerChrysler will retain some of the retiree liabilities.

In addition, the removal of Chrysler from DaimlerChrysler should increase its leverage with labor unions, while a restructuring program announced in February should also result in some operational improvements, he said.

"Short of a potential Chrysler stake, we see few positive catalysts for Magna shares and remain concerned about high 'Big Three' exposure, ongoing challenges at underperforming divisions, the potential loss of the X3 program at its assembly unit, and an unfavorable ownership structure," Archambault wrote in a note to investors.

"That said, we see downside as limited. We feel minimal Chrysler-related option value is in the stock. We also believe valuation and Street estimates now reflect lower, more reasonable earnings expectations for Magna."