Turnaround Letter Buy-rated BorgWarner (BWA) reported a 5.3% decline in revenues and a 15% decline in adjusted per-share earnings. Adjusted EBITDA declined 10%. All three metrics were roughly in-line with consensus estimates.
BorgWarner shares have declined 11% since the report, as the company reduced its full year 2019 earnings guidance by about 8% and reduced its 3Q19 earnings guidance by about 18%. The change in guidance was driven by slower global light vehicle production, especially in China, as well as higher input costs and weak foreign currencies.
Its success with “outgrowth” (organic growth in excess of its light vehicle end-markets) continues, as it reported organic growth of -0.3% compared to end-market growth of -5.6% this past quarter. BorgWarner’s management remains diligent on costs, and will outline its margin expansion initiatives in the next few quarters which will likely include exerting pressure on their supply base to lower their costs. The balance sheet is essentially unchanged from a year ago, while year-to-date free cash flow improved to $300 million compared to $161 million a year ago.
The company continues to make inroads into the electrified vehicle market. In addition to internally developed capabilities, it is expanding its reach through external partnerships, including its new joint venture with Romeo Power Technology, a developer of battery technologies. The company is winning new EV mandates and is well-positioned as the EV market expands.
While the near-term outlook is cloudy, the stock’s valuation at 5.9x EV/EBITDA is attractive and we reiterate our $58 price target.
We continue to rate BorgWarner (BWA) shares a buy with a $58 price target.
Disclosure Note: One or more employees of the Publisher own BWA shares.