uploads/2016/03/bwa-pm.jpg

Moody’s Affirmed BorgWarner’s Rating to Baa1 with Negative Outlook

By

Updated

Price movement of BorgWarner

BorgWarner (BWA) has a market cap of $7.5 billion. BWA fell by 2.9% to close at $34.42 per share as of March 8, 2016. The price movement on a weekly, monthly, and year-to-date (or YTD) basis is 0.76%, 17.3%, and -20.1%, respectively.

Currently, BWA is trading 5.9% above its 20-day moving average, 2.0% above its 50-day moving average, and 21.8% below its 200-day moving average.

The iShares Russell 1000 Growth ETF (IWF) invests 0.09% of its holdings in BorgWarner. The ETF tracks an index of US large-cap and midcap stocks selected from the Russell 1000 Index with the highest growth characteristics, based on Russell’s style methodology. The YTD price movement of IWF was -3.0% as of March 7, 2016.

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

  • Honeywell International (HON) — $82.8 billion
  • Cummins (CMI) — $17.7 billion
  • Tenneco (TEN) — $2.7 billion
Article continues below advertisement

Moody’s revised BorgWarner outlook

Moody’s Investors Service revised the rating outlook of BorgWarner to negative. Moody’s also affirmed the company’s Baa1 senior unsecured ratings and Prime-2 short-term debt rating.

Performance of BorgWarner in recent 4Q15 and 2015

BorgWarner reported fiscal 4Q15 net sales of $2,123.1 million, a rise of 6.6% compared to net sales of $1,991.9 million in fiscal 4Q14. Sales of engine and drivetrain segments rose by 0.96% and 19.5%, respectively, in fiscal 4Q15, compared to fiscal 4Q14.

Its net income and EPS (earnings per share) fell to $125.3 million and $0.56, respectively, in fiscal 4Q15, compared to $139.9 million and $0.61, respectively, in fiscal 4Q14.

Article continues below advertisement

Fiscal 2015 results

In fiscal 2015, BWA reported net sales of $8,023.2 million, a fall of 3.4% YoY (year-over-year). Its net income and EPS fell to $609.7 million and $2.70, respectively, in fiscal 2015, compared to $655.8 million and $2.86, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents fell by 27.6%, and inventories rose by 43.1% in fiscal 2015. Its current ratio fell to 1.3x, and long-term debt-to-equity rose to 0.59x in fiscal 2015, compared to a current ratio and long-term debt-to-equity ratio of 1.4x and 0.19x, respectively, in fiscal 2014.

The PE (price-to-earnings) and PBV (price-to-book value) ratios of BorgWarner were 12.8x and 2.2x, respectively, as of March 8, 2016.

Projections

BorgWarner made the following projections for fiscal 1Q16 and fiscal 2016:

Fiscal 1Q16

  • It expects net sales growth in the range of 8.3%–13.3%. After excluding the impact of foreign currencies and the Remy acquisition, net sales growth is expected to be in the range of -0.3%–2.7%.
  • It expects EPS in the range of $0.75–$0.79. After excluding the Remy acquisition, EPS is expected to be in the range of $0.72–$0.76.

Fiscal 2016

  • Its expects net sales growth in the range of 13.2%–18.3%. After excluding the impact of foreign currencies and the Remy acquisition, net sales growth is expected to be in the range of 2.5%–5.5%.
  • It expects EPS in the range of $3.11–$3.32. After excluding the Remy acquisition, EPS is expected to be in the range of $2.98–$3.18.
  • It expects operating income as a percentage of net sales to be above 12%.
Advertisement

More From Market Realist