On January 22, we have downgraded the automotive powertrain
) 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
Ford Motor Co.
). 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
). This company carries a Zacks Rank #1 (Strong Buy).
BORG WARNER INC (BWA): Free Stock Analysis
FORD MOTOR CO (F): Free Stock Analysis Report
OSHKOSH CORP (OSK): Free Stock Analysis
(VLKAY): ETF Research Reports
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