FG Trade
If you’re excited about the growth of EVs in the automotive sector, or if you just want to be part of the global reopening from COVID-induced shutdowns and turmoil in the ICE (gasoline-powered) car market, one name is top and highly profitable. We stand out as a high quality supplier. to the industry – BorgWarner Co., Ltd. (New York Stock Exchange: BWA).
We talked about the company in another bullish article from February 2021 here. The stock is basically at the same level after almost two years, mimicking the flat performance of the S&P 500 total return over the same period. doing. Auto Market Reopening and Supply Problems in his chain are limiting auto production and negatively impacting BorgWarner’s total parts sales. Still, strong revenue generation and an increase in overall revenue numbers will provide an excellent base upon which to ultimately increase the number of industry units manufactured.
Another factor driving ownership is that the company understands that electric vehicles are the future and has decided to split its fuel systems and aftermarket parts divisions into separate companies by the end of 2023. What remains is the electric propulsion and drivetrain division and air management. segment. The company has set a target of $4.5 billion for him in 2025, starting with his EV-related sales of less than $350 million in 2021. These numbers compare to approximately $15 billion in company-wide revenue for the 2022 calendar year.
Company Website – BorgWarner EV Technology
Excellent valuation for new buyers
The company had $6.5 billion in liquid assets, including cash and accounts receivable, and $9 billion in total liabilities at the end of September. This conservative setting for a capital-intensive business looks even better when compared to annual cash flow generation of $1.2 billion and free cash flow of $800 million. Strong cash flow gives management the financial flexibility to grow the business, reduce debt, pay dividends or buy back stock. In theory, BorgWarner said he could be “net” irresponsible in two to three years.
To me, the most sensible argument for owning a company is its bargain valuation proposition. In fact, today’s basic ratio analysis shows that overall valuations are approaching his BWA’s March 2020 pandemic drop, a decade low.
Below is a 10-year graph of price to most recent earnings, sales, cash flow and tangible book value. BorgWarner is currently selling at a discount of approximately 25% to the 10-year average.
YCharts – BorgWarner, Price to Trailing Fundamentals, 10 Years
Add in a stellar balance sheet in January 2023, and the news gets even better. Using enterprise value (total debt minus cash holdings), BWA is priced at a 35% discount to his 10-year average. An EV to EBITDA or sales calculation would consider the business to be in long-term decline.
YCharts – BorgWarner, EBITDA and EV vs. Earnings, 10 Years
Comparing BWA’s statistics on company valuations, it’s also easy to see that the stock is undervalued relative to major automakers and parts suppliers. Below is a graph looking at his future EBITDA projected by Wall Street analysts. BorgWarner’s 5x EV to estimated EBITDA ratio is incredibly low.A sort group contains Tesla (TSLA), ford (F), general motors (GM), Toyota (TM), Honda (HMC), rear (LEA), Gentex (GNTX), autoliv (ALV), Aptive PLC (APTV), and Magna International (MGA).
YCharts – EV Forward EBITDA for Auto Industry Companies 2021 and Beyond
Again, in terms of total enterprise value and subsequent revenue generation, BWA is essentially the cheapest of the group at 13x.
YCharts – Automotive Companies, From EVs to Trailing Earnings, 2022
Very low valuations downplay the disruption of the business and appear to be headed towards contraction, but the opposite is happening. Earnings per share are expected to double for him over the next five years, with roughly a +15% growth rate.This forecast means BorgWarner is selling for the long term peg ratio (price-to-earnings ratio divided by earnings growth) approached 0.80 today. Remember that PEG numbers below 1.0 are considered strong buy areas. (Even after the 20% to 30% drop in the typical US equity bear market in 2022, we’re still struggling to find a PEG below 1.0.)
Seeking Alpha Table – BorgWarner, Analyst EPS Estimates, 2022-27 Jan 5, 2022
Improving trading momentum
Low valuations and positive long-term growth stories have started to fuel investor trading interest since October. The latest strength lifted it to the leading position for its total return performance among its automakers and parts peers in this article, with both his most recent 6-month and 12-month results: BorgWarner is turning into a standout choice.
YCharts – Automotive Industry Companies, Total Revenue, Last 6 Months YCharts – Automotive Industry Companies, Total Revenue, Last 12 Months
Looking at the one-year chart of daily price and volume changes, the BWA is also starting to outperform the generic S&P 500 index. Moreover, the price is firmly above the rising 50 and 200-day moving averages.
StockCharts.com – BorgWarner, Daily Price and Volume Changes, 12 Months
Other momentum indicators are trending higher in early January. 14th money flow index It reached an oversold state a few weeks ago and turned to buy (blue circle). moreover, negative volume index has been very strong since March (marked by a red arrow), implying that regular “bear buying” has been part of the investment equation for some time. His bullish NVI trend could also indicate a shortage of indirect supply.
final thoughts
BorgWarner offers an opportunity to earn substantial long-term gross returns (currently 1.6% dividend yield) regardless of my consumer demand for cars. No clear-cut decisions need to be made about which automaker will be the winner of his EV sales growth in the near future. You don’t need to anticipate the worst of the looming recession or know first hand when auto sales will rise dramatically. It’s important to note that the company supplies many in the automotive industry with the award-winning parts they need to keep their cars performing at peak performance.
looking for alpha quantity rank of BorgWarner are currently in the top 5% of scores. Looking at trading momentum and earnings revisions, this name deserves a deeper dive by readers and serious investors.
Seeking Alpha Table – BorgWarner Quant Ranks, January 5, 2022
A conservative balance sheet, excellent valuations, and above-average growth prospects are all available in a single investment, well-positioned to profit as economies reopen globally and demand for EVs surges. it’s finished.
What are the investment risks? The biggest downsides to BorgWarner are that (1) car sales will take a hit for years in a deep recession scenario, and (2) Wall Street in general will continue to experience a severe bear market decline in 2023. I think it comes from So I’m not going to ignore them. But if BWA struggles this year, the rest of the auto industry could face even more serious problems for investors. Excessive debt levels, intense sales competition, and even operating losses are not the company’s concerns.
thank you for reading. Consider this article the first step in your due diligence process. We recommend that you consult with a registered and experienced investment advisor before trading.
Editor’s Note: This article describes one or more securities that are not traded on any major US exchange. Please be aware of the risks associated with these stocks.