On August 6, 2023, BorgWarner Inc (BWA, Financial) experienced a daily gain of 2.71%, with its stock price standing at $42.52. The company reported an Earnings Per Share (EPS) of 4.05. The question arises: is the stock fairly valued? This article will delve into the valuation analysis of BorgWarner (BWA) to provide an answer. Read on to uncover valuable insights.
An Overview of BorgWarner Inc (BWA, Financial)
BorgWarner is a leading Tier I auto-parts supplier with three operating segments. Its diverse product portfolio includes turbochargers, e-boosters, e-turbos, timing systems, emissions systems, thermal systems, gasoline ignition technology, powertrain sensors, and cabin heaters. The company also produces automatic transmission components, torque management products, battery heaters, battery charging, and battery modules. Furthermore, BorgWarner's e-propulsion segment offers e-motors, power electronics, and software and control modules.
With Ford and Volkswagen as its largest customers, accounting for 13% and 8% of 2022 revenue respectively, BorgWarner has a significant global presence. Europe accounted for 34% of 2022 revenue, while Asia and North America equally contributed 32% each. Currently, BorgWarner's stock price stands at $42.52, with a market cap of $10 billion. The company's intrinsic value, as estimated by our GF Value, is $44.6, suggesting that the stock is fairly valued.
Understanding the GF Value of BorgWarner (BWA, Financial)
The GF Value is a proprietary measure that provides an estimate of a stock's fair trading value. The GF Value Line on our summary page offers an overview of the stock's ideal fair trading value, calculated considering:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) at which the stock has traded.
- A GuruFocus adjustment factor based on the company's past performance and growth.
- Future estimates of the business performance.
If the stock price significantly exceeds the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $42.52 per share, BorgWarner appears to be fairly valued. As the stock is fairly valued, the long-term return of its stock is likely to align with the rate of its business growth.
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Examining BorgWarner's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss, making it crucial for investors to scrutinize a company's financial strength before deciding to buy shares. BorgWarner's cash-to-debt ratio stands at 0.19, ranking lower than 75.66% of companies in the Vehicles & Parts industry. Based on this, GuruFocus ranks BorgWarner's financial strength as 7 out of 10, indicating a fair balance sheet.
Profitability and Growth of BorgWarner
Companies that have been consistently profitable over the long term offer less risk for investors. BorgWarner has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $16.9 billion and Earnings Per Share (EPS) of $4.05. Its operating margin is 9.57%, which ranks better than 77.57% of companies in the Vehicles & Parts industry. Overall, the profitability of BorgWarner is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of BorgWarner is10.7%, which ranks better than 65.88% of companies in the Vehicles & Parts industry. However, the 3-year average EBITDA growth is 1.7%, ranking lower than 59.91% of companies in the Vehicles & Parts industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, BorgWarner's ROIC was 9.84, while its WACC came in at 8.31.
Conclusion
In summary, the stock of BorgWarner appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks lower than 59.91% of companies in the Vehicles & Parts industry. To learn more about BorgWarner stock, you can check out its 30-Year Financials here.
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