Automotive component supplier BorgWarner (BWA, Financial) looks set to take advantage of the fast-growing automotive market. Also, falling fuel prices around the world are accelerating its sales. Moreover, excellent operational efficiency in the Engine segment and well-organized cost control measures are enhancing its top line growth. In addition, BorgWarner is strategically investing in long-term growth opportunities and improving its productivity that should earn incremental revenue for the company going forward.
However, it has reduced its earnings guidance for the full year. BorgWarner now expects its full year earnings to be in the range of $3.23 to $3.28 per share from its previous guidance of $3.25 to $3.35 per share. Also, its revenue now ranges between 11% and 13% which is down from its earlier guidance of 13% to 15% growth in revenue. This reduction in the earnings is due to the currency fluctuations. Therefore, the investors should avoid its short term return and focus on its long-term growth prospects that look quite appealing.
Turbochargers look pretty promising
BorgWarner sees tremendous growth attached to its Turbochargers sales across Europe, China and Korea. Turbochargers are used in automobiles that help the manufacturers to condense engine size, reduce weight, emissions, and enhance efficiency. Also, the company expects the demand for its turbochargers to pick up the pace in the future.
This expansion plan should better enable the company to meet the growing demand for automotive components across the world. IHS Automobile expects the global auto sales to reach 100 million by 2018 as compared 82 million at the end of 2013. As a result, demand for auto components will also increase, and BorgWarner is doing the right thing by expanding capacity.
Drivetrain sales are rising…
BorgWarner is seeing increasing sales for its drivetrain across the world. It is realizing higher sales for its high dual clutch transmission. It witnessed relatively higher volume for its high dual clutch transmission in Europe. Further, the company is expanding this division. Its restructuring plan is on track. It is now moving its equipment from its Western European Operations to Poland. These actions will certainly enhance its competitive position and create value for shareholders in the long run.
However, this move of shifting equipment might cause some in-efficiency in its business in the short term, but in the long-term it should assist the company to fulfil rising demand for its Engine segments in the markets.
Conclusion
BorgWarner looks good with rising automobile demand that should drive its return in short as well as in the long run. Also, the company is making significant progress with its turbochargers and drivetrains across the globe that should withstand its growth in the future. The analysts expects its earnings to grow at CAGR of 15.24%, which is in line with average industry CAGR of 15.59% for the next five years that clearly highlights its growth potential in the future.
Moreover, the stock still holds cheap valuations. Its trailing P/E of 18.62 and forward P/E of 14.28 are below 20 and reflect a lot of growth potential for the stock in the future. Also, its PEG ratio of 1.07 continues to support its growth in the future. It has profit and operating profit margins of 8.02% and 12.92% respectively for the last twelve months. Its balance sheet carries total cash of $782.80 million and has total debt of $1.31 billion. It has operating cash flow of $750.20 million and levered free cash flow of $389.84 million.
