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BorgWarner (BWA) heads into its upcoming earnings report with growing attention on the stock, as bullish sentiment and strong technical readings converge alongside a recently confirmed date for its quarterly results call.
See our latest analysis for BorgWarner.
That backdrop of bullish sentiment has formed against a share price that has climbed recently, with a 90 day share price return of 12.09% and a 1 year total shareholder return of 69.05%, suggesting momentum has been building rather than fading.
If earnings season has you looking beyond a single name, this is a good moment to broaden your watchlist with our screener of 22 power grid technology and infrastructure stocks as potential next ideas.
With the shares up strongly over the past year, trading just below an average analyst price target and sitting on an estimated 33% intrinsic discount, you have to ask: is BorgWarner still underpriced, or is the market already baking in future growth?
According to the current narrative, BorgWarner’s fair value of $39.17 sits well below the last close of $50.36, which raises clear questions about how much optimism is already priced in.
Like most auto-parts suppliers, BorgWarner’s operations are capital-intensive with significant fixed costs, so a sudden decline in volume (like that caused by COVID-19) translates into a significant drop in profitability.
Curious what kind of growth, margins and future earnings multiple have to line up for that fair value to make sense? The whole valuation framework is built off a specific blend of revenue expansion, profitability targets and an assumed future P/E that is very different from today’s headline multiple. If you want to see exactly how those moving parts combine into that $39.17 figure, the full narrative lays it all out.
Result: Fair Value of $39.17 (OVERVALUED)
Have a read of the narrative in full and understand what’s behind the forecasts.
However, that thesis could be challenged if capital intensive operations experience a sudden volume shock again, or if volatile commodity costs pressure margins more than expected.
Find out about the key risks to this BorgWarner narrative.
That 28.6% overvaluation call sits awkwardly next to our DCF model, which suggests BorgWarner’s current share price of $50.36 is below an estimated future cash flow value of $75.34. On this view, the stock appears undervalued rather than expensive, which raises a simple question: which story do you trust more, the earnings multiple or the cash flows?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out BorgWarner for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 55 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.
If this view does not sit right with you, or you simply want to test your own assumptions against the same data, you can create a custom BorgWarner story in just a few minutes and Do it your way.
A great starting point for your BorgWarner research is our analysis highlighting 2 key rewards and 4 important warning signs that could impact your investment decision.
You have already done the hard work by digging into BorgWarner, so do not stop here when a few extra minutes could uncover your next strong idea.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include BWA.
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