BWA Fundamental Research Investment Analysis, Borg Warner Inc.

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Borg Warner Inc. (BWA)

The Razor's Edge

2-Year Price History

Recent Price
(1/7/2009)
$23.65
52-Week Price
$15.00 - $55.99
Market Capitalization
$2.7 Billion
Dividend Yield
2.00%
Most Recent Dividend
$0.34

About Borg Warner Inc.

Borg Warner Inc. is considered to operate in the Consumer Goods sector. They specifically operate in the Automotive Parts business segment contained within the Automotive industry.

The Company is a global supplier of engineered automotive systems and components for power train applications.

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

BWA Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, BWA the high and low end of the Price to Sales per share ratios are 0.90x and 0.56x respectively.

Notice that BWA's current Price to Sales per share ratio is 0.40x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $22.96, BWA is 45% below where we would expect to see it. This will beneficially factor into our final analysis of BWA as it is not often that this stock sinks to these levels.

BWA Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently BWA is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for BWA, the current level of Cash Earnings compared to its historical levels helps identify where BWA is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 8.34 and a historical low Cash Earnings per share ratio of 5.14, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for BWA? From the Ockham perspective, we are looking specifically at BWA to see if the market is recognizing the huge disparity between BWA's past stock price to Cash Earnings ratio to today's levels. At a difference of 43% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at BWA. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

BWA Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure on a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from BWA against the historic high and low levels over an available data range. Because BWA has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In BWA’s case, the estimated annual dividend is $0.48 producing a current dividend yield of 2.09%. The highest dividend yield from BWA in recent history was 3.20% while the lowest dividend yield was 0.64%. A current dividend yield of 8.85% above the historical median is favorable in our analysis of BWA.

Peer Comparison

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Borg Warner Inc. Industry Grouping

(1/7/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding BWA) 1.90 2.13 » 12.66 0.16 0.37 » 2.42 8.40% 13.58%
*10 year range does not include current year values
Magna International, Inc. Class A Sub.Vtg MGA $3.7 Billion $32.70 2.06 3.16 » 7.98 0.14 0.28 » 2.21 15.98% 9.74%
Borg Warner Inc. BWA $2.7 Billion $23.65 3.90 1.85 » 11.12 0.40 0.30 » 4.51 14.30% 13.28%
General Motors Corp. GM $2.5 Billion $4.13 0.23 0.87 » 7.61 0.01 0.38 » 1.16 -0.61% 5.18%
Navistar International Corp. NAV $2.2 Billion $30.71 1.67 2.13 » 18.88 0.12 0.21 » 1.49 15.00% 9.32%
Tata Motors Limited ADR TTM $1.9 Billion $4.95 3.31 2.45 » 17.63 0.21 0.69 » 3.09 n/a 19.82%
Tomkins PLC TKS $1.8 Billion $8.24 2.25 2.06 » 11.20 0.31 0.26 » 4.16 3.25% 23.82%
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Key Fundamentals

BWA - Borg Warner Inc. Fundamentals
Price (1/7/2009) $23.65
Volume (1/7/2009) 1.1 Million
10 Day Average Volume 1.1 Million
13 Week Price Range $15.00 - $26.42
52 Week Price Range $15.00 - $55.99
LTM Revenue $5.7 Billion
 
Shares Outstanding (12/2007) 115.8 Million
Market Capitalization $2.7 Billion
Shares Held By Institutions 106.7 Million
Insitutional Holders 371
% Shares Held By Institutions 92.10%
Earnings Per Share (EPS) $2.45
P/E Ratio 24.10
Book Value Per Share $19.23
 
Gross Margin 23.10%
Quarterly Dividend 0.48
Dividend Yield 2.00%
Beta 1.45
Fiscal Year Ends December