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Why BorgWarner Shares Jumped 11% Higher Thursday Morning

By Daniel Miller - Oct 31, 2019 at 12:26PM

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Here's what investors need to know about third-quarter financials, a divestiture, and BorgWarner's future.

What happened

Shares of BorgWarner (BWA 1.66%), a leading global supplier of parts and technology for traditional combustion engines, as well as for electric and hybrid vehicles, jumped as much as 11% higher Thursday morning after the company released better-than-expected third-quarter results.

So what

Net sales increased 0.6% to $2.49 billion, higher than analysts' estimates calling for $2.39 billion. When adjusted for foreign currencies and the impact of acquisitions and divestitures, net sales were up 4.5% compared to the prior year. Adjusted earnings per share checked in at $0.96, well above analysts' estimates calling for $0.85 per share.

Beyond the top and bottom lines, BorgWarner also announced it has divested BorgWarner Morse TEC, a subsidiary of the company that holds asbestos and other liabilities. The move is expected to drive an after-tax loss of up to $40 million during the fourth quarter, but the move eliminates roughly $772 million of asbestos liabilities from the balance sheet and eliminates annual cash costs for defending and settling asbestos-related cases.

An electric vehicle charging.

Rising electric vehicle sales should benefit BorgWarner. Image source: Getty Images.

Now what

While many investors have shied away from automotive stocks as sales plateau in North America, it's important to remember that not all car stocks are the same. BorgWarner is well positioned for global hybrid and electric vehicle growth, and that could prove lucrative, as its innovative electric powertrain solutions should drive larger margins than commercialized combustion-engine products. Many global automakers have laid out plans to heavily invest in their electrification strategy, but it's still unclear how quickly this megatrend will develop. But when global fleets transition to electrified vehicles, don't be surprised if BorgWarner outperforms traditional auto suppliers.

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

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