BorgWarner (NYSE:BWA) Faces Financial Challenges in Upcoming Quarter
- Anticipated declines in both earnings and revenue for BorgWarner, with earnings per share expected to decrease by 26.7% and revenue projected to fall by 16.9%.
- A slight upward revision in the consensus EPS estimate suggests some analysts see potential for better-than-expected performance.
- The company's stock performance post-earnings announcement and its ability to navigate market challenges amidst the automotive industry's shift towards electric and hybrid vehicles will be key.
BorgWarner (NYSE:BWA), a leading global supplier in the automotive industry, is facing a challenging quarter with anticipated declines in both earnings and revenue. The company, known for its innovative propulsion systems for combustion, hybrid, and electric vehicles, is expected to report earnings of $0.99 per share for the quarter ending June 2024. This represents a significant decrease of 26.7% compared to the same period last year. Additionally, revenue is projected to fall to $3.76 billion, marking a 16.9% decline from the previous year's figures. These projections highlight the financial pressures BorgWarner is currently experiencing, reflecting broader industry trends and possibly internal challenges.
Despite these challenges, there has been a slight upward revision in the consensus EPS estimate, increasing by 0.1% over the last 30 days. This adjustment suggests that some analysts see potential for BorgWarner to perform slightly better than initially expected. However, the overall sentiment remains cautious, as evidenced by the company's Earnings ESP (Earnings Surprise Prediction) of -3.21%. This negative ESP, combined with a Zacks Rank of #3 (Hold), indicates that analysts are not confident in BorgWarner's ability to exceed expectations in the upcoming earnings report.
BorgWarner's stock performance following the earnings announcement on July 31 will be closely watched by investors. The company's ability to surpass consensus EPS estimates in three of the last four quarters, including an impressive 18.39% surprise in the last reported quarter, has previously buoyed investor confidence. However, the current negative Earnings ESP and the hold rating from Zacks suggest that repeating such a performance might be more challenging this time around.
Investors are keenly awaiting BorgWarner's earnings report as it will provide valuable insights into the company's operational and financial health. Given the expected decline in earnings and revenue, the report will be crucial for understanding how BorgWarner is navigating the current market challenges. The automotive industry is undergoing significant transformations, with shifts towards electric and hybrid vehicles accelerating. How BorgWarner adapts to these changes while managing the anticipated downturn will be critical for its future growth and stock performance.
| Symbol | Price | %chg |
|---|---|---|
| ASII.JK | 4860 | 1.03 |
| MASA.JK | 6200 | 0 |
| 012330.KS | 250000 | -1 |
| SMSM.JK | 1780 | -0.28 |
Goldman Sachs Turns Bullish on BorgWarner, Cites China Strength and Tariff Resilience
Goldman Sachs upgraded BorgWarner (NYSE:BWA) to a Buy rating from Neutral, raising its price target to $34 from $31, pointing to the company's relative strength in navigating the evolving global auto landscape.
Despite trimming overall estimates for the automotive parts sector, Goldman sees BorgWarner in a more favorable light due to several key factors. The company’s exposure to U.S. import tariffs is relatively limited, which lowers potential downside risk from trade tensions. Additionally, its strategic manufacturing footprint—producing components in the same regions where they’re sold—provides a buffer against rising global tariff threats.
Another strength lies in BorgWarner's significant presence in China, which accounts for roughly 20% of its total revenue. Much of this is linked to fast-growing domestic automakers, especially those focused on electric vehicles (EVs), where BorgWarner’s expanding lineup of eProducts positions it to benefit from surging demand.
Goldman also noted the firm’s strong position across a range of powertrains, including hybrids and internal combustion engines. While the EV transition accelerates, the extended relevance of traditional drivetrains gives BorgWarner a longer revenue runway in legacy segments, while still capturing EV market growth.
BorgWarner Announces Plans to Spin Off its Fuel Systems & Aftermarket Segments
BorgWarner Inc. (NYSE:BWA) announced its plan to spin off its Fuel Systems and Aftermarket segments into a standalone, publicly traded company.
Analysts at Deutsche Bank provided their views on the announcement, stating they have mixed feelings about it. On the positive side, a divestiture makes strategic sense, allowing the remaining company to focus completely on growing and accelerating its EV opportunities, while the newly formed company could maximize its ICE-related free cash flow.
The remaining company’s revenue exposure to EV will become best-in-class, its growth above market profile should be higher, and if it can demonstrate margin improvement over time, this should warrant solid valuation multiple expansion for the BWA stock.
At the same time, the analysts mentioned they worry this could be dampened by the low market valuation of the stand-alone company, presumably in the context of a lack of strategic buyer interest for the assets, and since the stocks of previous ICE spinoffs have traded at low multiples.
Takeaways From BorgWarner’s Management Meeting
Analysts at Deutsche Bank provided their takeaways from their meeting with the management of BorgWarner Inc. (NYSE:BWA), including CEO Fred Lissalde, CFO Kevin Nowlan, and VP of IR Patrick Nolan.
Management discussed near-term operating conditions and commented that while the Ukraine crisis should have a minimal direct impact on its business, it has created additional uncertainty with the supply chain and increased inflationary pressures.
At the same time, the analysts mentioned that the company mostly sources components, rather than commodities, and there usually is a lag of several months until input price movements make their way to its P&L. Furthermore, the company has contractual pass through with its customers for 50% of underlying raw material price increases, and is in active discussions with automakers for broader recoveries.
