With a daily gain of 2.71% and an Earnings Per Share (EPS) of 4.05, BorgWarner Inc (BWA, Financial) is drawing attention from investors. But is the stock fairly valued? This article delves into a comprehensive valuation analysis to answer this question. Read on to explore the intrinsic value of BorgWarner (BWA).
Introduction to BorgWarner Inc
BorgWarner is a leading Tier I auto-parts supplier with three main operating segments: air management, drivetrain and battery systems, and e-propulsion. The company's largest customers are Ford and Volkswagen, accounting for 13% and 8% of 2022 revenue, respectively. Geographically, Europe, Asia, and North America each contributed about a third to the 2022 revenue.
With a current stock price of $42.52 and a market cap of $10 billion, BorgWarner's value needs a closer look. The GF Value, our proprietary estimate of fair value, stands at $44.6. This valuation integrates BorgWarner's historical trading multiples, past performance, and future business estimates.
Understanding the GF Value
The GF Value is a unique measure that represents the stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor derived from the company's past performance and growth, and future performance estimates. The GF Value Line provides an overview of the stock's fair trading value.
If the stock price is significantly above the GF Value Line, the stock is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher. According to the GF Value calculation, BorgWarner (BWA, Financial) appears to be fairly valued. As such, the long-term return of its stock is likely to align with the rate of its business growth.
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Financial Strength of BorgWarner
Investing in companies with low financial strength could result in permanent capital loss, making it crucial for investors to review a company's financial strength before buying shares. BorgWarner has a cash-to-debt ratio of 0.19, ranking worse than 75.66% of companies in the Vehicles & Parts industry. Based on this, GuruFocus ranks BorgWarner's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth of BorgWarner
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. BorgWarner has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $16.9 billion and Earnings Per Share (EPS) of $4.05. Its operating margin of 9.57% is better than 77.57% of companies in the Vehicles & Parts industry. Overall, GuruFocus ranks BorgWarner's profitability as strong.
Growth is a crucial factor in the valuation of a company. BorgWarner's 3-year average revenue growth rate is better than 65.88% of companies in the Vehicles & Parts industry. However, BorgWarner's 3-year average EBITDA growth rate is 1.7%, ranking worse than 59.91% of companies in the Vehicles & Parts industry, indicating a need for improvement in growth.
ROIC vs WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. Over the past 12 months, BorgWarner's ROIC was 9.84, while its WACC came in at 8.31, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, BorgWarner's stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 59.91% of companies in the Vehicles & Parts industry. For more detailed information about BorgWarner stock, you can check out its 30-Year Financials here.
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