On Monday (NASDAQ:MNDY), JPMorgan updated its outlook on BorgWarner (NYSE:NYSE:BWA), raising the price target to $51.00 from $50.00, while maintaining an Overweight rating on the stock.
The firm's decision follows BorgWarner's third-quarter profits, which exceeded both JPMorgan and broader market expectations. This performance comes in spite of the demand challenges that have impacted other suppliers, leading to slightly lower than anticipated revenue.
BorgWarner reported third-quarter revenue of $3,449 million, which was slightly below JPMorgan's estimate of $3,477 million and the Bloomberg consensus of $3,516 million.
However, the company's earnings before interest and taxes (EBIT) reached $350 million, surpassing the $330 million JPMorgan estimate and the consensus of $332 million. The higher-than-expected margin of 10.1% contributed to this beat, with JPMorgan's estimate at 9.5% and consensus at 9.4%.
The company's earnings per share (EPS) for the quarter were $1.09, which was notably higher than JPMorgan's forecast of $0.93 and the consensus of $0.94. Free cash flow for the quarter was reported at $201 million, modestly lower than the expected $269 million by JPMorgan and the consensus of $301 million.
BorgWarner announced several new business awards during the quarter, including contracts for transfer cases with a North American OEM for their full-size pickups, high voltage coolant heaters with OEMs in Asia, and a high-performance turbocharger for General Motors (NYSE:GM)' Chevrolet Corvette ZR1.
Despite a reduced outlook for full-year 2024 eProduct sales, the company's diverse customer base, product offerings, and strong execution are seen as positive drivers for near and medium-term margin and earnings.
JPMorgan has adjusted its forecast for BorgWarner's adjusted EBIT in 2024 to $1,401 million from the previous $1,369 million, for 2025 to $1,530 million from $1,515 million, and for 2026 to $1,660 million from $1,635 million. The price target increase to $51 is based on these higher out-year estimates.
The analyst cited BorgWarner's low valuation, investment-grade balance sheet, and its ability to raise earnings outlook in a challenging environment as key factors for the Overweight rating.
In other recent news, BorgWarner has seen significant managerial and financial developments. The company announced a leadership transition with Joseph Fadool set to succeed Frédéric Lissalde as President and CEO, following Lissalde's planned retirement on February 6, 2025. Fadool's appointment, approved by the company's board, is anticipated to maintain operational excellence and drive value creation for stakeholders.
BorgWarner also reported solid Q3 performance, with organic sales surpassing $3.4 billion, despite a 5% year-over-year decline. The company outperformed the market, which saw a 6% decrease, and strengthened its adjusted operating margin to 10.1%, contributing to an increase in earnings per share (EPS) to $1.09.
Furthermore, BorgWarner completed a $400 million stock repurchase program and projected a positive outlook for the full year, forecasting sales between $14.0 billion and $14.2 billion and an adjusted EPS of $4.15 to $4.30.
These recent developments reflect BorgWarner's resilience in a challenging market and its strategic focus on cost management, new product awards, and a strong performance in the battery segment. The company remains committed to managing costs effectively and adapting its production processes for electrification.
InvestingPro Insights
BorgWarner's recent performance, as highlighted in JPMorgan's analysis, aligns with several key insights from InvestingPro. The company's P/E ratio of 8.7 and adjusted P/E ratio of 7.27 for the last twelve months as of Q3 2024 underscore its low earnings multiple, supporting JPMorgan's view on the company's attractive valuation. This is further reinforced by an InvestingPro Tip indicating that BWA is "Trading at a low P/E ratio relative to near-term earnings growth."
The company's financial health appears robust, with an InvestingPro Tip noting that "Cash flows can sufficiently cover interest payments," which aligns with JPMorgan's mention of BorgWarner's investment-grade balance sheet. Additionally, BWA has maintained dividend payments for 12 consecutive years, demonstrating consistent shareholder returns despite industry challenges.
While JPMorgan raised its EBIT forecasts, it's worth noting that BorgWarner's revenue for the last twelve months as of Q3 2024 stood at $14.17 billion, with a modest revenue growth of 1.26%. This data provides context to the company's performance in a challenging environment, as mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 10 additional tips for BorgWarner, providing deeper insights into the company's financial position and market performance.
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