Shares of BorgWarner (NYSE:BWA) gained 13.6% in October, according to data provided by S&P Global Market Intelligence, with much of that gain coming late in the month after the auto parts manufacturer reported better-than-expected third-quarter results. Investors have been skittish about car stocks and their suppliers, but BorgWarner is making a case it has a portfolio well-positioned to perform throughout the business cycle.
BorgWarner shares got a boost after the company reported third-quarter adjusted earnings of $0.96 per share on revenue of $2.49 billion, besting analyst expectations of $0.85 per share in earnings on sales of $2.39 billion. The company also raised the lower end of its full-year guidance by $0.10 per share to $3.85-$4.00, putting the range ahead of the $3.82 per-share consensus estimate.
The company, a maker of drivetrain technology and other systems for combustion, electric, and hybrid vehicles, is performing well in a difficult market. BorgWarner predicted the blended light-vehicle market will decline in the range of 4% to 4.5% for the full year.
BorgWarner also announced in October the divestiture of its BorgWarner Morse TEC subsidiary, which houses its legacy asbestos liabilities. The company warned it expects to take a $40 million after-tax loss in the fourth quarter related to the sale, but said the divestiture would eliminate up to $800 million in asbestos liabilities and future costs related to defending or settling asbestos litigation.
The auto business is highly cyclical, and automakers tend to take it out on suppliers when belt-tightening is required. Given how late we are in an up cycle, and the growing fears the U.S. economy could fall into recession, it's prudent to be cautious about buying into automotive suppliers right now.
But for those able to buy and hold through the cycle, BorgWarner is an intriguing candidate. The company's technologies are well-positioned to benefit from the slow but steady transition toward electrification in the industry.