Despite a daily loss of 1.99% and a 3-month gain of 5.36%, BorgWarner Inc (NYSE:BWA), an esteemed Tier I auto-parts supplier, boasts an Earnings Per Share (EPS) (EPS) of 4.05. This analysis aims to ascertain whether BorgWarner (NYSE:BWA) is modestly undervalued and to provide a comprehensive valuation analysis. We invite readers to delve into this comprehensive assessment of BorgWarner’s intrinsic value.
Company Overview
BorgWarner Inc (NYSE:BWA) is a prominent Tier I auto-parts supplier with three operating segments: air management, drivetrain and battery systems, and e-propulsion. The company’s largest customers are Ford and Volkswagen, contributing 13% and 8% of 2022 revenue, respectively. Geographically, Europe, Asia, and North America each account for around a third of the company’s revenue. With a current stock price of $39.95, BorgWarner’s market cap stands at $9.40 billion, suggesting that the stock is modestly undervalued compared to its GF Value of $44.41.
The GF Value of BorgWarner
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor derived from past performance and growth, and future business performance estimates. If a stock’s price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given BorgWarner’s current price of $39.95 per share and a market cap of $9.40 billion, the stock seems to be modestly undervalued according to the GF Value. As a result, BorgWarner’s long-term stock return is likely to exceed its business growth.
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Financial Strength of BorgWarner
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, reviewing a company’s financial strength is crucial before deciding to buy its stock. BorgWarner’s cash-to-debt ratio of 0.19 is lower than 75.62% of companies in the Vehicles & Parts industry. However, GuruFocus ranks BorgWarner’s overall financial strength at 7 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Investing in profitable companies typically carries less risk. BorgWarner has been profitable for 10 years over the past decade. In the last 12 months, the company had revenues of $16.90 billion and an EPS of $4.05. Furthermore, its operating margin of 9.57% is better than 77.71% of companies in the Vehicles & Parts industry. Overall, GuruFocus ranks BorgWarner’s profitability as strong.
Growth is a crucial factor in a company’s valuation. BorgWarner’s 3-year average annual revenue growth rate is 10.7%, ranking better than 65.88% of companies in the Vehicles & Parts industry. However, its 3-year average EBITDA growth rate is 1.7%, ranking worse than 59.91% of companies in the same industry.
ROIC vs. WACC
Comparing a company’s return on invested capital (ROIC) and the weighted cost of capital (WACC) can provide insights into its profitability. BorgWarner’s ROIC of 9.84 exceeds its WACC of 8.37 over the past 12 months, indicating a favorable investment environment.
Conclusion
In conclusion, BorgWarner’s stock appears to be modestly undervalued. The company’s financial condition is fair, its profitability is strong, and its growth is modest compared to other companies in the Vehicles & Parts industry. For more information about BorgWarner’s stock, check out its 30-Year Financials here.
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This article first appeared on GuruFocus.