Shares of automotive technology company BorgWarner (NYSE:BWA) rose 12.5% in May, according to data from S&P Global Market Intelligence. While it's hard to get too triumphant about a company set for a full-year organic revenue decline of 20%-27% based on management's guidance, there were four positives for the stock in May.
First, the company announced its first-quarter earnings at the start of May, and even though its organic year-over-year sales declined 8.1% in the quarter, it was a much better performance than the 19.6% decline in industry production. Consequently, management expects to continue to outperform its end market in 2020, with anticipated production declines in its end markets of 25%-31%.
Second, BorgWarner resolved its dispute with automotive parts manufacturer Delphi Technologies (NYSE:DLPH) regarding a possible breach of a transaction agreement, and terms were amended in due course. As such, BorgWarner expects to complete the acquisition in the second half of 2020.
Third, during the earnings call, BorgWarner's VP of investor relations told investors that a facility severely damaged by a tornado had "resumed production on May 4 and that the production rates should improve throughout the month of May."
Finally, there's a sense that auto production is slowly recovering as automakers reopen factories, and there may even be a case for arguing that demand for private cars could pick up as consumers may avoid using public transport over COVID-19 fears.
In a nutshell, conditions aren't as bad as they looked a month ago for BorgWarner, and that's enough to take the stock higher. It's going to be a long road back before auto production gets back to levels of recent years, but it's good to see BorgWarner getting back on track. Moreover, the Delphi acquisition may prove to be a very well-timed deal.
Investors will want to see car production improve and hope that BorgWarner can continue to outperform its end markets. Meanwhile, the Delphi acquisition will create growth opportunities as well the ongoing transition to hybrid and electric vehicle technology. It's going to be a tough year, but BorgWarner is preparing for it.