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Northcoast Downgrades BorgWarner to ‘Neutral’

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Price movement

BorgWarner (BWA) fell 5.1% to close at $39.74 per share during the second week of December 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -5.1%, 15.7%, and -6.6%, respectively, as of December 16. BWA is trading 5.4% above its 20-day moving average, 10.5% above its 50-day moving average, and 15.2% above its 200-day moving average.

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Related ETF and peers

The Vanguard Large-Cap ETF (VV) invests 0.03% of its holdings in BorgWarner. The YTD price movement of VV was 12.6% on December 16. The market caps of BorgWarner’s competitors are as follows:

  • Cummins (CMI) — $23.4 billion
  • Lear (LEA) — $9.4 billion
  • Tenneco (TEN) — $3.6 billion

BWA’s rating

On December 13, 2016, Northcoast downgraded BorgWarner’s rating to “neutral” from “buy.”

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Performance of BorgWarner in 3Q16

BorgWarner (BWA) reported 3Q16 net sales of $2.2 billion, a rise of 15.8% over its net sales of $1.9 billion in 3Q15. The company’s gross profit margin expanded 20 basis points, and its operating margin narrowed 580 basis points.

Its net income and EPS (earnings per share) fell to $83.3 million and $0.39, respectively, in 3Q16, compared with $157.4 million and $0.70, respectively, in 3Q15. The company reported non-GAAP (generally accepted accounting principles) EPS of $0.78 in 3Q16, a rise of 6.8% over 3Q15. BWA’s cash and inventories fell 10.2% and 5.0%, respectively, between 4Q15 and 3Q16.

Projections

BorgWarner (BWA) made the following projections for 4Q16:

  • net sales growth of 14.3%–17.8%
  • EPS of $0.82–$0.86, including ~$0.02 per share from its Remy acquisition

The company has made the following projections for 2016:

  • net sales growth of 15.2%–16.0%
  • EPS of $3.24–$3.28, including ~$0.12 per share from its Remy acquisition

Next, we’ll look at Archer Daniels Midland (ADM).

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