We maintain our Neutral recommendation on
) based on its improved first quarter 2013 performance. However,
we are concerned about the pricing pressure from OEMs and strong
Why Kept at Neutral?
On Apr 25, BorgWarner posted a 1.6% year-on-year increase in
adjusted earnings to $1.30 per share (excluding non-recurring
items) in the first quarter of 2013. Earning per share surpassed
the Zacks Consensus Estimate by 8 cents.
Revenues dipped 3.2% to $1.85 billion, but were marginally ahead
of the Zacks Consensus Estimate of $1.84 billion. The decrease in
revenues was due to a 9% decline in light vehicle production in
Europe, which accounts for over half of the company's sales.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 increased 0.4% to $5.33 per share.
Meanwhile, the Zacks Consensus Estimate for 2014 decreased 0.2%
to $6.31 per share. Currently, BorgWarner maintains a Zacks Rank
We believe that BorgWarner's advanced design and fuel efficient
technologies will boost its results going forward. The company
expects 80% of its new business to come from engine-related
products including turbochargers, ignition systems, emissions
products, engine timing systems, variable cam timing modules and
thermal systems. The remaining 20% will be generated from
drivetrain-related products including the fuel-efficient
DualTronic transmission technology, traditional automatic
transmission and all-wheel drive technologies.
BorgWarner expects annual sales to rise 2% to 6% in 2013.
Excluding the impact of 2012 dispositions, net sales are expected
to improve 3% to 7%. The company also expects net earnings
between $5.15 and $5.45 per share for the year and operating
margin to be higher than 11.5% in 2013.
However, we remain concerned about the strong competition faced
by BorgWarner. Some of its close rivals have developed
path-breaking technologies, which may jeopardize demand for the
company's products. In addition, BorgWarner faces continuous
pricing pressure from original equipment manufacturers to reduce
raw material costs.
Other Stocks to Look For
Some stocks that are performing well in the industry include
Tower International, Inc.
STRATTEC Security Corporation
). All these companies carry a Zacks Rank #1 (Strong Buy).
BORG WARNER INC (BWA): Free Stock Analysis
STRATTEC SEC CP (STRT): Free Stock Analysis
TOWER INTL INC (TOWR): Free Stock Analysis
VISTEON CORP (VC): Free Stock Analysis Report
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