Tags: BorgWarner | European | demand | BWA

BorgWarner Competitive, but Faces Shrinking European Demand

By    |   Wednesday, 15 August 2012 10:57 AM

BorgWarner (BWA) is, in the view of analysts, in a good position to compete, but it will do so over a shrinking pie for the time being in Europe, a key market. Analysts nevertheless see its shares as fairly priced for the immediate prospects of the global car market.

BorgWarner is a leading global supplier of highly engineered automotive systems and components primarily for powertrain applications. Its products help improve vehicle performance, fuel efficiency, stability and air quality.

BWA products are manufactured and sold worldwide, primarily to original equipment manufacturers (OEMs) of light vehicles such as passenger cars, sport-utility vehicles (SUVs), vans and light-trucks. The company's products are also sold to other OEMs of commercial vehicles, including medium-duty trucks, heavy-duty trucks and buses and off-highway vehicles, including agricultural and construction machinery and marine applications.

BorgWarner also manufactures and sells products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The company operates manufacturing facilities serving customers in the Americas, Europe and Asia, and is an original equipment supplier to every major automotive OEM in the world.

BorgWarner has a market cap of $8.06 billion in a sector, auto components, where the average company size is $1.69 billion. Its trailing 12-month P/E ratio is 15.89 and its five-year projected price-to-earnings-growth (PEG) ratio is 0.93, compared to 1.27 for the sector.

Its projected earnings per share growth for the coming year is 14.76 percent, compared to a sector average of 11.66 percent.


Analysts are positive on BWA, with buy or outperform calls from Lehman Brothers, RBC Capital Markets, and Ned Davis Research.

“BWA's strategy of maintaining technology leadership and high levels of investment in research will, in our view, enable it to gain market share as vehicle manufacturers focus even more on fuel efficiency and reducing engine emissions. Further, we expect global vehicle production to increase over the next three to five years,” Standard & Poor’s analysts wrote Aug. 10, rating the stock a hold.

“However, auto manufacturers across Europe, where BWA derives about half of its revenues, are cutting production. Balancing these factors, we think a valuation near the historical average is warranted.”

BorgWarner next reports on Oct. 25.

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