Please ensure Javascript is enabled for purposes of website accessibility

Why BorgWarner Stock Jumped 12% in September

By John Ballard - Updated Oct 7, 2019 at 6:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investors see better demand for the company's power-efficient engine components.

What happened

Shares of BorgWarner (BWA 2.49%) gained 12.4% last month, according to data provided by S&P Global Market Intelligence. The stock is down 36% over the last five years, as the company deals with a weak industry backdrop for automotive powertrain components. It has managed to grow sales over that time period, but not enough to justify a higher valuation, which is the main reason the stock has fallen.

But one analyst with Nomura initiated coverage of the stock last month with a buy rating. The analyst cited BorgWarner's continued sales outperformance relative to the industry, the expectation for higher margins, and relatively low exposure to the trade wars. 

A car sitting on a ramp with a clear view of the drivetrain underneath.

Image source: Getty Images.

So what

So far this year, the company has struggled to grow sales in the midst of a volatile environment for light-vehicle production in China. Additionally, higher supply chain costs and tariffs caused adjusted operating margin to fall to 11.9% in the second quarter, versus 12.7% last year. But the powertrain supplier has been known for its cost discipline and innovation, which is why investors are giving BorgWarner the benefit of the doubt in this difficult environment. 

It is also a leader in efficient and clean combustion technology, something that is increasingly being required around the world given regulations for clean energy. During the company's second-quarter conference call, CEO Frederic Lissalde said: "We can develop, specify, and manufacture all the major components of a battery-electric vehicle propulsion system. Our product breadth is really our advantage." 

Now what

Management expects to grow sales and earnings through 2023, which supports the investor confidence in the last month. The company is calling for revenue growth of about 6% per year, as demand returns to the market. If management can improve margins, the stock could be a steal at these levels. Currently, investors can buy a share for a forward price-to-earnings ratio of just 8.5 times next year's earnings estimate. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends BorgWarner. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BorgWarner Inc. Stock Quote
BorgWarner Inc.
$39.51 (2.49%) $0.96

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.