BorgWarner, Inc. (BWA) is expected to benefit from the growing demand for its strong technology-based product portfolio. About $1.95 billion of new powertrain business is expected between 2008 and 2010. Also, BWA has healthy financials with low debt and has further taken initiatives to maintain margins in the challenging North American industry environment. However, due to high raw material costs and price concessions to automotive makers, we rate the shares a Hold.
On May 1, 2008, BorgWarner reported first quarter 2008 results. For the quarter, sales were up 17% to $1,498.9 million, compared with $1,277.8 million in first quarter 2007. Net income in the quarter was $88.7 million, or $0.75 per diluted share, compared with $58.4 million, or $0.50 per diluted share in first quarter 2007 adjusted for the two-for-one stock split on December 17, 2007.
Earlier, on April 30, 2008, BorgWarner announced that its board of directors has authorized the purchase of up to five million shares of the company's common stock. The new authorization was made in anticipation of exhausting the limited number of shares that remain available under the previous program authorized in 2000.
Management expects revenues of $1.95 billion from the net new powertrain business for 2008 through 2010, an 11% increase over its previous three-year new business. Demand for the company's environmentally friendly technologies such as turbochargers and dual-clutch transmission technology continue to drive a growth rate for the company that exceeds that of the auto industry. About 50% of the new business is expected to come from Europe and 20% from North America over the next three years.
Currently, shares of BWA are trading at 17.9x our 2008 EPS estimate of $2.84. We are rating BWAâs stock a Hold, as the impressive slew of new product launches is burdened with high raw material prices. Our cautious approach is reflected in our six-month target price of $50, which is derived by using our 2008 EPS estimate, and a forward multiple of 17.6x.
Read the full analyst report on BWA.
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