BorgWarner (BWA, Financial) posted strong results for the third quarter. The key driver behind BorgWarner’s solid financial performance was strong end-market demand. The company is seeing good demand from the engine segment and expects it to be a long-term driver.
The engine segment will continue driving sales
Looking at the Engine segment closely, the robust sales are contributing to the company’s revenue. Not only in the U.S., but on the international front as well, BorgWarner is seeing good turbocharger sales in places like Europe, China and Korea. The company is counting on Drivetrain. It is making efforts to drive growth in and restructure this segment. These efforts are sure to drive Drivetrain’s sales mainly due to the huge demand of high-clutch transmission in Europe.
These impressive efforts by the company are expected to enhance Drivetrain’s competitive position in the market, which will help the company strengthen its long-term prospects.
BorgWarner is seeing good response across all its product portfolio. The company is further engaged in enhancing its operational performance and the restructuring efforts are expected to improve its long term performance in the coming days. Further, BorgWarner has aggressive investment plans. It is seeing good growth in its long-term capital spending.
A strong customer base
Moving on, BorgWarner is pleased to have some key customers. BorgWarner supplies its mini-direct acting variable force solenoid for General Motors’ (GM, Financial) front-wheel-drive, 6-speed automatic transmission program. The main feature that attracts the customers towards this is that this solenoid has good fuel economy and shift feel. This is seeing good growth in demand in the places like America, Europe, China and South Korea with some of the most known names in the industry including Chevy, Buick and GMC vehicles.
China being a potential market for BorgWarner, the company has recently opened its second turbocharger production facility in China. The company has strategically opened this facility near Taicang, close to Shanghai. This is expected to produce advanced turbocharging technologies for many other automotive makers. In addition, BorgWarner’s friction technology is also well accepted in the market and is further seeing good demand.
Volkswagen (VLKAY, Financial) is using this technology for its new hybrid DQ 400e-dual-clutch transmission which launched in 2014 in Volkswagen Golf and Audi A3 e-tron. The catchy part in this technology is that it improves shift performance, NVH and fuel economy which attracts more customers to the automotive, subsequently driving demand for this technology.
Conclusion
Looking at the fundamentals, BorgWarner is cheap with a trailing P/E of 19.80 while the forward P/E of 15.19 shows good improvement in earnings in the near term. Also, in the next five years, the company’s earnings are growing at a CAGR of 15.24%, which is close to the industry average of 15.60%. All these signs show that there is much steam in the stock for the future as well. Also, the growing traction for its technology on the international fronts are also expected to drive its sales leading to better revenue generation. Considering all these facts, BorgWarner is a good pick as of now, and investors can definitely include it in their portfolios.
