BorgWarner Saw a Steep 9.5% Fall

BorgWarner (BWA) has a market cap of $7.6 billion. It fell by 9.5% to close at $33.84 per share on January 13, 2016. The price movement on a weekly, monthly, and year-to-date (or YTD) basis is -15.8%, -15.0%, and -21.7%, respectively.

Technically, the stock has broken the support and is trading below all moving day averages. Currently, BWA is trading 17.7% below its 20-day moving average, 18.8% below its 50-day moving average, and 31.7% below its 200-day moving average.

The Vanguard Mid-Cap Growth ETF (VOT) invests 0.69% of its holdings in BorgWarner. The ETF tracks a market-cap-weighted index of mid-cap growth companies selected by CRSP. The YTD price movement of VOT is -6.3% as of January 12, 2016.

The market caps of BorgWarner’s (BWA) competitors are as follows:

• Honeywell International (HON): $74.8 billion
• Cummins (CMI): $15.1 billion
• Lear (LEA): $8.1 billion

BorgWarner made the following projections for fiscal 1Q16:

• net sales growth in the range of 8.3% to 13.3% over fiscal 1Q15
• diluted EPS (earnings per share) in the range of $0.75 to $0.79
• operating income as a percentage of net sales over 12%

BorgWarner made the following projections for fiscal 2016:

• net sales growth in the range of 13.2% to 18.3%
• diluted EPS in the range of $3.11 to $3.32
• operating income as a percentage of net sales over 12%
• free cash flows in the range of $400 million to $475 million
• share repurchases in the range of $200 million to $300 million

BorgWarner made the following new business projections for the next three years:

• new business with a compound annual growth rate of 4% to 6%
• net new business in the range of $230 million to $390 million in fiscal 2016, $410 million to $590 million in fiscal 2017, and $460 million to $670 million in fiscal 2018
• approximately 70% of business from engine-related products like turbochargers, ignition systems, emissions products, and engine timing systems
• approximately 30% of business from drivetrain-related products like all-wheel drive systems, fuel-efficient DualTronic transmission technology, and traditional automatic transmission products

BorgWarner reported 3Q15 net sales of $1,884.0 million, which was a fall of 7.3% compared to net sales of $2,032.1 million in 3Q14. Its net income and EPS fell to $157.4 million and $0.70, respectively, in 3Q15. In comparison, it posted net income and EPS of $166.6 million and $0.73, respectively, in 3Q14.

Meanwhile, its cash and inventories rose by 29.5% and 3.4%, respectively, in 3Q15, compared to 4Q14. Its long-term debt-to-equity ratio rose to 0.46 in 3Q15, compared to its long-term debt-to-equity ratio of 0.19 in 4Q14.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of BorgWarner are 12.3x and 2.1x, respectively, as of January 13, 2016.

The company has made the following projections for fiscal 2015:

• Net sales will be in the range of -6.0% to -5.0% compared with fiscal 2014.
• Net EPS, excluding non-comparable items, will be in the range of $2.95 to $3.00.