On Jan 29, we maintained our Neutral recommendation on
) based on an improvement in the bottom line in the third quarter
of 2013 and benefits from the acquisition of Gustav Wahler.
However, pricing pressure from original equipment manufacturers
(OEMs) and strong competition could adversely impact the
Why the Reiteration?
On Oct 30, 2013, BorgWarner posted a 17.7% increase in adjusted
earnings to $1.40 per share in the third quarter of 2013 compared
with $1.19 in the third quarter of 2012. Earning per share
outpaced the Zacks Consensus Estimate by 6 cents.
Revenues increased 6.6% year on year to $1.81 billion, but missed
the Zacks Consensus Estimate of $1.84 billion. Revenues benefited
from a favorable impact of the euro, partially offset by an
unfavorable impact of Japanese yen.
BorgWarner expects annual sales to improve 3%-4% year over year
in 2013. BorgWarner expects net earnings (excluding
non-comparable items) of $2.78-$2.83 a share in 2013. The Zacks
Consensus Estimate of $2.81 lies within this guidance range.
For 2014, BorgWarner projects a 12%-15% rise in earnings per
share to $3.10-$3.25, compared with the Zacks Consensus Estimate
of $3.24. Organic sales are expected to grow 7%-11% from the 2013
sales guidance, based on rising demand for product technologies
that improve fuel efficiency and emissions performance.
Additionally, BorgWarner will benefit from the acquisition of
Gustav Wahler GmbH u. Co. KG and its general partner. The
takeover is expected to culminate in the first quarter of 2014.
The buyout is likely to fortify BorgWarner's position as a
producer of complete exhaust gas recirculation (EGR) systems and
is also expected to enhance market opportunities in passenger and
commercial vehicle application.
However, BorgWarner faces intense pressure from OEMs to reduce
price. It is unable to pass on the increase in raw material costs
to its OEM customers. In addition, the company faces tough
competition as many of its competitors enjoy advantages such as
lower labor and health care costs, lower tax rates and sometimes
subsidies related to export and raw materials.
Other Stocks That Warrant a Look
BorgWarner carries a Zacks Rank #3 (Hold).
Better-ranked stocks in the industry in which BorgWarner operates
STRATTEC Security Corporation
). STRATTEC and Gentex carry a Zacks Rank #1 (Strong Buy), while
Meritor has a Zacks Rank #2 (Buy).
BORG WARNER INC (BWA): Free Stock Analysis
GENTEX CORP (GNTX): Free Stock Analysis
MERITOR INC (MTOR): Free Stock Analysis
STRATTEC SEC CP (STRT): Free Stock Analysis
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