Auto parts company and Motley Fool Stock Advisor recommendation BorgWarner
Overall, the worldwide auto industry increased in size (as measured by sales) only 3% last year. Yet BorgWarner made 15% more sales in 2004 than in 2003. How could it do that? There's only one explanation: The company has to be seizing market share from its competitors.
Recent earnings warnings from competitors such as Dana
Speaking of double digits, in 2004, BorgWarner increased its sales by fully 15% and translated those sales gains into profits growth of nearly 21% as it earned $3.86 per diluted share for its owners. Free cash flow (FCF) growth impressed similarly, rising from last year's $135 million to $222 million in 2004, for a 64% year-on-year increase.
At its current enterprise value (EV) of $3.4 billion, BorgWarner now sports an EV/FCF ratio of 15.3. With long-term growth being estimated at 12.5% per annum on average, the company isn't an absolute steal, but it's certainly cheaper than the average market multiple (which is close to two times EV/FCF growth). And in comparison to its competitors, BorgWarner -- the investment -- again faces real competition from only Eaton, which sports an EV/FCF of 18.4 and a 10% projected growth rate. Granted, even that's not a terribly close contest, but with Dana and Delphi both posting negative FCF over the past 12 months, it's the closest competition BorgWarner's stock is going to get for investors in this sector.
For more Foolish auto industry news, read:
- BorgWarner Revs Up
- Toyota: Resistance Is Futile
- Delphi's Downer
- Visteon Struggles On
- BorgWarner's Truckin'
Fool contributor Rich Smith has no position in any of the companies mentioned in this article.