Turnaround Letter Buy-rated BorgWarner (BWA) reported 3Q19 results. Compared to consensus estimates, BorgWarner reported strong revenues (4% better) and adjusted per share earnings (13% better). Compared to a year ago results, revenues and earnings were basically flat as the company was able to navigate the increasingly-difficult automotive market much better than analysts had expected. One good indicator of its ability to grow faster than its end-market: BorgWarner’s revenues excluding the effects of mergers and currency changes (organic revenues) rose 4.5% while the company’s market declined 0.4%.
The company modestly raised its full-year earnings, operating margin and free cash flow guidance despite reducing their outlook for the automotive market to - 4.0% to - 4.5% for the year.
Eliminating a long-running overhang, BorgWarner has sold its Morse TEC unit which holds its asbestos liabilities, removing $772 million of liabilities from its already-sturdy balance sheet.
Overall, the company continues to execute, make valuable inroads into the electric vehicle market, and produce large amounts of free cash flow after paying its dividends.
We continue to rate shares of BorgWarner (BWA) as a Buy with a price target of 58.
Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks including BWA shares.