After hitting its all-time high two weeks ago, BorgWarner's
The good news
Last Wednesday, Borg reported $1.29 per share in profits, up 7% from last year's Q2. Its $1.36 billion in sales beat out estimates by more than $100 million. And as the piece de resistance, Borg promised further good news down the road, adding a dime to its full-year earnings guidance. And if all that sounds good to you, you're not alone. Borg CEO Tim Manganello described the results as "outstanding."
Once again, the tough U.S. auto sales environment found that "resistance was futile" when faced with the Borg's market-share-grabbing ways. As production in the Ford-
The bad news
So what's not to like, you ask? And I repeat -- it's the valuation. So far this year, Borg has generated $100.9 million in free cash flow. While a 15% improvement over last year's H1 performance, that's still significantly below GAAP net earnings. Moreover, if you project out that H1 performance to get a run rate on Borg's free cash flow for the year, you'll see that Borg currently trades for roughly 25 times its run rate of $202 million.
That's an awful lot of money to pay for a firm growing free cash flow at 15% per year. So say it with me, Fools, one more time: Great company, lousy stock price.
Track the Borg's progress with:
- Foolish Forecast: Borg's Back
- Foolish Forecast: Can Borg Bounce Back?
- Resisting BorgWarner Is Futile: Fool by Numbers