× We think BorgWarner’s economic moat sources derived from powertrain intellectual property and switching costs are misunderstood. The market, in our view, has valued shares as though revenue declines long term on shrinking demand for internal combustion engines, despite increasing penetration in ICE, exposure to globally popular sport utilities, and electrified powertrain growth potential.
× We forecast annualized revenue growth that exceeds global vehicle demand growth by 2-4 percentage points.
× $2.0-$2.4 billion booked net new business backlog through 2021, implies 5-6% organic CAGR.
× EBITDA margin has had a high, low, and median of 17.2%, 9.7%. and 16.7%, respectively. We assume a 15.0% normalized sustainable midcycle EBITDA margin. Investors would have to believe a 12.4% midcycle EBITDA margin for our model to generate a fair value equivalent to the sell-side consensus price target.
× In our opinion, the market values BorgWarner as though fundamentals are in permanent decline, giving no credit for the company’s economic moat in powertrain technologies and consistent ROIC generation above cost of capital.
Company Profile
BorgWarner Inc. provides solutions for combustion, hybrid, and electric vehicles worldwide. The company’s Engine segment offers turbocharger and turbocharger actuators; eBoosters; and timing systems products, including timing chains, variable cam timing, crankshaft and camshaft sprockets, tensioners, guides and snubbers, front-wheel drive transmission chains, four-wheel drive chains, and hybrid power transmission chains. It also provides emissions systems, such as electric air pumps and exhaust gas recirculation (EGR) modules, EGR coolers and valves, glow plugs, and instant starting systems; thermal systems products comprising viscous fan drives, polymer fans, coolant pumps, cabin heaters, battery heaters, and battery charging; and gasoline ignition technologies.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.