BorgWarner Down to Underperform - Analyst Blog
January 23 2013 - 6:50AM
Zacks
On January 22, we have downgraded the automotive powertrain
products manufacturer BorgWarner Inc. (BWA) to
Underperform based on its lower revenues and pessimistic view on
2012 results.
Why the Downgrade?
Although BorgWarner’s earnings rose 3.5% to $1.19 per share
(excluding non-recurring items) in the third quarter of the year,
its revenues dipped 5% to $1.7 billion due to a 6% fall in light
vehicle production in Europe. Operating income declined 3.4% to
$192.0 million (excluding non-recurring items) in the quarter.
BorgWarner lowered its 2012 revenues and earnings guidance owing to
the economic slowdown in Europe. For the year, the company
anticipates annual sales growth between 0% and 1% compared with the
prior guidance of 4% to 6%. The company also expects net earnings
between $4.90 and $5.00 per share for the year, excluding special
items, which is lower than the prior outlook of $5.05 to $5.25 per
share.
Following the release of third quarter results, the Zacks Consensus
Estimate for 2012 has remained unchanged at $4.96 per share.
However, the Zacks Consensus Estimate for 2013 declined 1.3% to
$5.28 in the same timeframe.
Cause for Concern
Apart from the weakening European market, where the company
generates over half of its sales, we are worried about the strong
competition faced by the company as path-breaking technologies are
continuously developed by its peers, which could reduce demand for
its products.
Further, BorgWarner has high concentration of sales to its major
customers such as Volkswagen AG (VLKAY) and
Ford Motor Co. (F). The company’s worldwide sales
to Volkswagen and Ford constitute about 20% and 10% of total sales,
respectively.
Other Stocks That are Worth a Look
While we prefer to avoid BorgWarner, other stocks from the same
industry that are worth a look include Oshkosh
Corporation (OSK). This company carries a Zacks Rank #1
(Strong Buy).
BORG WARNER INC (BWA): Free Stock Analysis Report
FORD MOTOR CO (F): Free Stock Analysis Report
OSHKOSH CORP (OSK): Free Stock Analysis Report
(VLKAY): ETF Research Reports
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