BorgWarner Inc Valuation – February 2019 $BWA

Company Profile (excerpt from Reuters): BorgWarner Inc., incorporated on May 4, 1987, is engaged in providing technology solutions for combustion, hybrid and electric vehicles. The Company’s segments include Engine and Drivetrain. The Engine segment’s products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Drivetrain segment’s products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company’s products are manufactured and sold across the world, primarily to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). Its products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). The Company also manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BWA – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $8,694,363,986 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.59 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 81.86% Pass
6. Moderate PEmg Ratio PEmg < 20 11.93 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.01 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.59 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.38 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.51
MG Growth Estimate 5.38%
MG Value $67.56
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $50.88
MG Value based on 0% Growth $29.82
Market Implied Growth Rate 1.72%
Current Price $41.86
% of Intrinsic Value 61.96%

BorgWarner Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.58 in 2015 to an estimated $3.51 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.72% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into BorgWarner Inc. revealed the company was trading below its Graham Number of $43.32. The company pays a dividend of $0.68 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.93, which was below the industry average of 21.23, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.33.

BorgWarner Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.33
Graham Number $43.32
PEmg 11.93
Current Ratio 1.59
PB Ratio 2.01
Current Dividend $0.68
Dividend Yield 1.62%
Number of Consecutive Years of Dividend Growth 6

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,804,600,000
Total Current Liabilities $2,398,900,000
Long-Term Debt $1,940,700,000
Total Assets $10,095,300,000
Intangible Assets $2,292,900,000
Total Liabilities $5,750,500,000
Shares Outstanding (Diluted Average) 208,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.11
Dec2018 $4.44
Dec2017 $2.08
Dec2016 $2.76
Dec2015 $2.56
Dec2014 $2.86
Dec2013 $2.70
Dec2012 $2.09
Dec2011 $2.22
Dec2010 $1.54
Dec2009 $0.12
Dec2008 -$0.16
Dec2007 $1.23
Dec2006 $0.92
Dec2005 $1.04
Dec2004 $0.97
Dec2003 $0.80
Dec2002 -$0.56
Dec2001 $0.31
Dec2000 $0.44
Dec1999 $0.63

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.51
Dec2018 $3.12
Dec2017 $2.50
Dec2016 $2.67
Dec2015 $2.58
Dec2014 $2.49
Dec2013 $2.11
Dec2012 $1.60
Dec2011 $1.23
Dec2010 $0.74
Dec2009 $0.43
Dec2008 $0.66
Dec2007 $1.04
Dec2006 $0.85
Dec2005 $0.71
Dec2004 $0.49
Dec2003 $0.28

Recommended Reading:

Other ModernGraham posts about the company

BorgWarner Inc Valuation – April 2018 $BWA
BorgWarner Inc Valuation – December 2016 $BWA
BorgWarner Inc Valuation – August 2016 $BWA
5 Companies for Enterprising Investors Near 52 Week Lows – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016

Other ModernGraham posts about related companies

Ford Motor Co Valuation – February 2019 $F
General Motors Co Valuation – February 2019 $GM
O’Reilly Automotive Inc Valuation – February 2019 $ORLY
Goodyear Tire & Rubber Co Valuation – January 2019 $GT
Genuine Parts Co Valuation – January 2019 $GPC
Autozone Inc Valuation – January 2019 $AZO
Linamar Corp Valuation – October 2018 $TSE-LNR
AutoNation Inc Valuation – September 2018 $AN
Superior Industries International Inc Valuation – August 2018 $SUP
Lydall Inc Valuation – August 2018 $LDL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

BorgWarner Inc Valuation – April 2018 $BWA

Company Profile (excerpt from Reuters): BorgWarner Inc., incorporated on May 4, 1987, is engaged in providing technology solutions for combustion, hybrid and electric vehicles. The Company’s segments include Engine and Drivetrain. The Engine segment’s products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Drivetrain segment’s products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company’s products are manufactured and sold across the world, primarily to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). Its products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). The Company also manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in Europe, the Americas and Asia.

BWA Chart

BWA data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of BWA – April 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $11,302,087,501 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.46 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 70.03% Pass
6. Moderate PEmg Ratio PEmg < 20 20.90 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.01 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.46 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.88 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.53
MG Growth Estimate 0.26%
MG Value $22.81
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $36.71
MG Value based on 0% Growth $21.52
Market Implied Growth Rate 6.20%
Current Price $52.91
% of Intrinsic Value 231.92%

BorgWarner Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.49 in 2014 to an estimated $2.53 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into BorgWarner Inc. revealed the company was trading above its Graham Number of $39.58. The company pays a dividend of $0.59 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 20.9, which was above the industry average of 17.88. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.95.

BorgWarner Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$11.95
Graham Number $39.58
PEmg 20.90
Current Ratio 1.46
PB Ratio 3.01
Current Dividend $0.59
Dividend Yield 1.12%
Number of Consecutive Years of Dividend Growth 5

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $3,543,200,000
Total Current Liabilities $2,425,200,000
Long-Term Debt $2,103,700,000
Total Assets $9,787,600,000
Intangible Assets $2,374,500,000
Total Liabilities $6,070,800,000
Shares Outstanding (Diluted Average) 211,467,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.95
Dec2017 $2.08
Dec2016 $0.55
Dec2015 $2.70
Dec2014 $2.86
Dec2013 $2.70
Dec2012 $2.09
Dec2011 $2.22
Dec2010 $1.54
Dec2009 $0.12
Dec2008 -$0.16
Dec2007 $1.23
Dec2006 $0.92
Dec2005 $1.04
Dec2004 $0.97
Dec2003 $0.80
Dec2002 -$0.56
Dec2001 $0.31
Dec2000 $0.44
Dec1999 $0.63
Dec1998 $0.50

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.53
Dec2017 $1.94
Dec2016 $1.97
Dec2015 $2.63
Dec2014 $2.49
Dec2013 $2.11
Dec2012 $1.60
Dec2011 $1.23
Dec2010 $0.74
Dec2009 $0.43
Dec2008 $0.66
Dec2007 $1.04
Dec2006 $0.85
Dec2005 $0.71
Dec2004 $0.49
Dec2003 $0.28
Dec2002 $0.10

Recommended Reading:

Other ModernGraham posts about the company

BorgWarner Inc Valuation – December 2016 $BWA
BorgWarner Inc Valuation – August 2016 $BWA
5 Companies for Enterprising Investors Near 52 Week Lows – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016
26 Best Stocks For Value Investors This Week – 2/6/16

Other ModernGraham posts about related companies

CarMax Inc Valuation – April 2018 $KMX
Ford Motor Company Valuation – April 2018 $F
General Motors Co Valuation – April 2018 $GM
O’Reilly Automotive Inc Valuation – April 2018 $ORLY
Goodyear Tire & Rubber Co Valuation – March 2018 $GT
Genuine Parts Co Valuation – March 2018 $GPC
AutoZone Inc Valuation – February 2018 $AZO
Thor Industries Inc Valuation – Initial Coverage $THO
Titan International Inc Valuation – Initial Coverage $TWI
Harley-Davidson Inc Valuation – August 2017 $HOG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

BorgWarner Inc Valuation – December 2016 $BWA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how BorgWarner Inc (BWA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BorgWarner Inc. is a supplier of engineered automotive systems and components for powertrain applications. The Company operates through two segments: Engine and Drivetrain. The Engine segment’s products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Drivetrain segment’s products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company manufactures and sells products to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). The Company sells the products to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). It also manufactures and sells its products to Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles.

BWA Chart

BWA data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of BWA – December 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,419,056,713 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.35 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 597.05% Pass
6. Moderate PEmg Ratio PEmg < 20 15.47 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.40 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.35 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.48 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.69
MG Growth Estimate 10.22%
MG Value $77.89
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $39.02
MG Value based on 0% Growth $22.88
Market Implied Growth Rate 3.48%
Current Price $41.63
% of Intrinsic Value 53.45%

BorgWarner Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.6 in 2012 to an estimated $2.69 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.48% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into BorgWarner Inc. revealed the company was trading above its Graham Number of $32.53. The company pays a dividend of $0.13 per share, for a yield of 0.3% Its PEmg (price over earnings per share – ModernGraham) was 15.47, which was below the industry average of 17.79, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.39.

BorgWarner Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.39
Graham Number $32.53
PEmg 15.47
Current Ratio 1.35
PB Ratio 2.40
Current Dividend $0.13
Dividend Yield 0.31%
Number of Consecutive Years of Dividend Growth 0

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $3,289,200,000
Total Current Liabilities $2,445,100,000
Long-Term Debt $2,089,900,000
Total Assets $9,007,300,000
Intangible Assets $2,224,900,000
Total Liabilities $5,297,400,000
Shares Outstanding (Diluted Average) 213,766,000

Earnings Per Share History

Next Fiscal Year Estimate $2.70
Dec2015 $2.70
Dec2014 $2.86
Dec2013 $2.70
Dec2012 $2.09
Dec2011 $2.22
Dec2010 $1.54
Dec2009 $0.12
Dec2008 -$0.16
Dec2007 $1.23
Dec2006 $0.92
Dec2005 $1.04
Dec2004 $0.97
Dec2003 $0.80
Dec2002 -$0.56
Dec2001 $0.31
Dec2000 $0.44
Dec1999 $0.63
Dec1998 $0.50
Dec1997 $0.54
Dec1996 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.69
Dec2015 $2.63
Dec2014 $2.49
Dec2013 $2.11
Dec2012 $1.60
Dec2011 $1.23
Dec2010 $0.74
Dec2009 $0.43
Dec2008 $0.66
Dec2007 $1.04
Dec2006 $0.85
Dec2005 $0.71
Dec2004 $0.50
Dec2003 $0.28
Dec2002 $0.11
Dec2001 $0.45
Dec2000 $0.50

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016
26 Best Stocks For Value Investors This Week – 2/6/16
BorgWarner Inc Valuation – February 2016 Update $BWA
12 Best Stocks For Value Investors This Week – 11/7/15

Other ModernGraham posts about related companies

Ford Motor Company Valuation – November 2016 $F
CarMax Inc Valuation – November 2016 $KMX
Advance Auto Parts Inc Valuation – November 2016 $AAP
General Motors Company Valuation – November 2016 $GM
Delphi Automotive PLC Valuation – August 2016 $DLPH
Carmax Inc Valuation – August 2016 $KMX
BorgWarner Inc Valuation – August 2016 $BWA
Ford Motor Company Valuation – August 2016 $F
O’Reilly Automotive Inc Valuation – July 2016 $ORLY
Genuine Parts Co Valuation – July 2016 $GPC

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

BorgWarner Inc Valuation – August 2016 $BWA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how BorgWarner Inc (BWA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BorgWarner Inc. is a supplier of engineered automotive systems and components for powertrain applications. The Company operates through two segments: Engine and Drivetrain. The Engine segment’s products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Drivetrain segment’s products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company manufactures and sells products to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). The Company sells the products to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). It also manufactures and sells its products to Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles.

[level-free]
BWA Chart

BWA data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of BWA – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,098,156,466 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.34 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 622.36% Pass
6. Moderate PEmg Ratio PEmg < 20 11.92 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.96 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.34 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.63 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

BWA value chart August 2016

EPSmg $2.79
MG Growth Estimate 11.16%
MG Value $86.02
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $40.47
MG Value based on 0% Growth $23.72
Market Implied Growth Rate 1.71%
Current Price $33.26
% of Intrinsic Value 38.67%

BorgWarner Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.6 in 2012 to an estimated $2.79 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.71% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into BorgWarner Inc. revealed the company was trading below its Graham Number of $34.06. The company pays a dividend of $0.52 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 11.92, which was below the industry average of 17.79, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.69.

BorgWarner Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

BWA charts August 2016

Net Current Asset Value (NCAV) -$9.69
Graham Number $34.06
PEmg 11.92
Current Ratio 1.34
PB Ratio 1.96
Current Dividend $0.52
Dividend Yield 1.56%
Number of Consecutive Years of Dividend Growth 4

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $3,206,900,000
Total Current Liabilities $2,399,800,000
Long-Term Debt $2,119,500,000
Total Assets $8,988,600,000
Intangible Assets $2,292,300,000
Total Liabilities $5,306,900,000
Shares Outstanding (Diluted Average) 216,663,000

Earnings Per Share History

Next Fiscal Year Estimate $3.00
Dec2015 $2.70
Dec2014 $2.86
Dec2013 $2.70
Dec2012 $2.09
Dec2011 $2.23
Dec2010 $1.54
Dec2009 $0.12
Dec2008 -$0.16
Dec2007 $1.23
Dec2006 $0.91
Dec2005 $1.04
Dec2004 $0.97
Dec2003 $0.80
Dec2002 -$0.56
Dec2001 $0.31
Dec2000 $0.44
Dec1999 $0.63
Dec1998 $0.50
Dec1997 $0.54
Dec1996 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.79
Dec2015 $2.63
Dec2014 $2.49
Dec2013 $2.11
Dec2012 $1.60
Dec2011 $1.24
Dec2010 $0.74
Dec2009 $0.43
Dec2008 $0.66
Dec2007 $1.04
Dec2006 $0.85
Dec2005 $0.71
Dec2004 $0.50
Dec2003 $0.28
Dec2002 $0.11
Dec2001 $0.45
Dec2000 $0.50

Recommended Reading:

Other ModernGraham posts about the company

5 Companies for Enterprising Investors Near 52 Week Lows – June 2016
10 Companies Benjamin Graham Would Invest In Today – June 2016
26 Best Stocks For Value Investors This Week – 2/6/16
BorgWarner Inc Valuation – February 2016 Update $BWA
12 Best Stocks For Value Investors This Week – 11/7/15

Other ModernGraham posts about related companies

Ford Motor Company Valuation – August 2016 $F
O’Reilly Automotive Inc Valuation – July 2016 $ORLY
Genuine Parts Co Valuation – July 2016 $GPC
Johnson Controls Inc Valuation – July 2016 $JCI
Goodyear Tire & Rubber Co Valuation – July 2016 $GT
Harley-Davidson Inc Valuation – June 2016 $HOG
Autozone Inc Valuation – June 2016 $AZO
BorgWarner Inc Valuation – February 2016 Update $BWA
Genuine Parts Co Valuation – January 2016 Update $GPC
Ford Motor Company Valuation – January 2016 Update $F

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

BorgWarner Inc Valuation – February 2016 Update $BWA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how BorgWarner Inc (BWA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BorgWarner Inc. is a supplier of engineered automotive systems and components for powertrain applications. The Company operates through two segments: Engine and Drivetrain. The Engine segment’ develops and manufactures products in gasoline and diesel engines and alternative powertrains. The Drivetrain segment develops and manufactures products for automatic transmissions and all-wheel drive (AWD) vehicles. The Company manufactures and sells the product across the world, to equipment manufacturers (OEMs) of light vehicles. The Company sells the products to other OEMs of commercial vehicles and off-highway vehicles (agricultural and construction machinery and marine applications). It also manufactures and sells its products to Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in the Americas, Europe and Asia and is an equipment supplier to automotive OEM.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BWA – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,679,848,424 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.14 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 322.17% Pass
6. Moderate PEmg Ratio PEmg < 20 10.65 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.73 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.14 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.98 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

BWA value Chart February 2016

EPSmg $2.67
MG Growth Estimate 15.00%
MG Value $102.78
Opinion Undervalued
MG Value based on 3% Growth $38.71
MG Value based on 0% Growth $22.69
Market Implied Growth Rate 1.08%
Current Price $28.44
% of Intrinsic Value 27.67%

BorgWarner Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the inconsistent dividend history.  The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.24 in 2011 to an estimated $2.67 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.08% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Stage 3: Information for Further Research

BWA Charts February 2016

Net Current Asset Value (NCAV) -$2.96
Graham Number $32.43
PEmg 10.65
Current Ratio 2.14
PB Ratio 1.73
Dividend Yield 1.83%
Number of Consecutive Years of Dividend Growth 3

 

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $3,301,000,000
Total Current Liabilities $1,539,800,000
Long-Term Debt $1,734,500,000
Total Assets $7,687,100,000
Intangible Assets $1,183,700,000
Total Liabilities $3,970,100,000
Shares Outstanding (Diluted Average) 225,991,000

Earnings Per Share History

Next Fiscal Year Estimate $2.82
Dec2014 $2.86
Dec2013 $2.70
Dec2012 $2.09
Dec2011 $2.23
Dec2010 $1.54
Dec2009 $0.12
Dec2008 -$0.16
Dec2007 $1.23
Dec2006 $0.92
Dec2005 $1.04
Dec2004 $0.97
Dec2003 $0.80
Dec2002 -$0.56
Dec2001 $0.31
Dec2000 $0.44
Dec1999 $0.63
Dec1998 $0.50
Dec1997 $0.54
Dec1996 $0.22

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.67
Dec2014 $2.49
Dec2013 $2.11
Dec2012 $1.60
Dec2011 $1.24
Dec2010 $0.74
Dec2009 $0.43
Dec2008 $0.66
Dec2007 $1.04
Dec2006 $0.85
Dec2005 $0.71
Dec2004 $0.49
Dec2003 $0.28
Dec2002 $0.10
Dec2001 $0.45
Dec2000 $0.50
Dec1999 $0.48

Recommended Reading:

Other ModernGraham posts about the company

12 Best Stocks For Value Investors This Week – 11/7/15
The Best Companies of the Auto Industry – October 2015
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – August 2015
The 16 Best Stocks For Value Investors This Week – 8/1/15
BorgWarner Inc. Analysis – July 2015 Update $BWA

Other ModernGraham posts about related companies

Genuine Parts Co Valuation – January 2016 Update $GPC
Ford Motor Company Valuation – January 2016 Update $F
Harley-Davidson Inc Valuation – January 2016 Update $HOG
AutoNation Inc Valuation – November 2015 Update $AN
BorgWarner Inc. Valuation – November 2015 Update $BWA
The Best Companies of the Auto Industry – October 2015
Harley-Davidson Inc. Analysis – October 2015 Update $HOG
Harman International Industries Analysis – September 2015 Update $HAR
Genuine Parts Company Analysis – September 2015 Update $GPC
Ford Motor Company Analysis – August 2015 Update $F

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

BorgWarner Inc. Valuation – November 2015 Update $BWA

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how BorgWarner Inc. (BWA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BorgWarner Inc. is a supplier of engineered automotive systems and components for powertrain applications. The Company operates through two segments: Engine and Drivetrain. The Engine segment’ develops and manufactures products in gasoline and diesel engines and alternative powertrains. The Drivetrain segment develops and manufactures products for automatic transmissions and all-wheel drive (AWD) vehicles. The Company manufactures and sells the product across the world, to equipment manufacturers (OEMs) of light vehicles. The Company sells the products to other OEMs of commercial vehicles and off-highway vehicles (agricultural and construction machinery and marine applications). It also manufactures and sells its products to Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates manufacturing facilities serving customers in the Americas, Europe and Asia and is an equipment supplier to automotive OEM.

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To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[level-mg-stocks-screens-subscriber]

Downloadable PDF version of this valuation:

ModernGraham Valuation of BWA – October 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $9,670,197,466 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.14 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 322.17% Pass
6. Moderate PEmg Ratio PEmg < 20 16.04 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.60 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.14 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.98 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

BWA value Chart October 2015

EPSmg $2.67
MG Growth Estimate 15.00%
MG Value $102.78
Opinion Undervalued
MG Value based on 3% Growth $38.71
MG Value based on 0% Growth $22.69
Market Implied Growth Rate 3.77%
Current Price $42.82
% of Intrinsic Value 41.66%

BorgWarner Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability over the last ten years as well as the inconsistent dividend record.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.24 in 2011 to an estimated $2.67 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.77% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on BorgWarner Inc. (BWA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

BWA Charts October 2015

Net Current Asset Value (NCAV) -$2.96
Graham Number $32.43
PEmg 16.04
Current Ratio 2.14
PB Ratio 2.60
Dividend Yield 1.21%
Number of Consecutive Years of Dividend Growth 3

 

[/level-mg-stocks-screens-subscriber]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $3,301,000,000
Total Current Liabilities $1,539,800,000
Long-Term Debt $1,734,500,000
Total Assets $7,687,100,000
Intangible Assets $1,183,700,000
Total Liabilities $3,970,100,000
Shares Outstanding (Diluted Average) 225,991,000

Earnings Per Share History

Next Fiscal Year Estimate $2.82
Dec14 $2.86
Dec13 $2.70
Dec12 $2.09
Dec11 $2.23
Dec10 $1.54
Dec09 $0.12
Dec08 -$0.16
Dec07 $1.23
Dec06 $0.92
Dec05 $1.04
Dec04 $0.97
Dec03 $0.80
Dec02 -$0.56
Dec01 $0.31
Dec00 $0.44
Dec99 $0.63
Dec98 $0.50
Dec97 $0.54
Dec96 $0.22
Dec95 $0.39

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.67
Dec14 $2.49
Dec13 $2.11
Dec12 $1.60
Dec11 $1.24
Dec10 $0.74
Dec09 $0.43
Dec08 $0.66
Dec07 $1.04
Dec06 $0.85
Dec05 $0.71
Dec04 $0.49
Dec03 $0.28
Dec02 $0.10
Dec01 $0.45
Dec00 $0.50
Dec99 $0.51

Recommended Reading:

Other ModernGraham posts about the company

The Best Companies of the Auto Industry – October 2015
5 Undervalued Companies for Enterprising Investors Near 52 Week Lows – August 2015
The 16 Best Stocks For Value Investors This Week – 8/1/15
BorgWarner Inc. Analysis – July 2015 Update $BWA
BorgWarner Inc. Quarterly Valuation – April 2015 $BWA

Other ModernGraham posts about related companies

The Best Companies of the Auto Industry – October 2015
Harley-Davidson Inc. Analysis – October 2015 Update $HOG
Harman International Industries Analysis – September 2015 Update $HAR
Genuine Parts Company Analysis – September 2015 Update $GPC
Ford Motor Company Analysis – August 2015 Update $F
Advance Auto Parts Inc. Analysis – Initial Coverage $AAP
General Motors Company Analysis – 2015 Update $GM
BorgWarner Inc. Analysis – July 2015 Update $BWA
Paccar Inc. Analysis – July 2015 Update $PCAR
Harley Davidson Analysis – June 2015 Update $HOG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

BorgWarner Inc. Analysis – July 2015 Update $BWA

220px-BorgWarner.svgBorgWarner Inc. (BWA) has shown strong earnings growth over the last several years, a factor that immediately attracts some investors. In addition, some analysts believe the company to be a good value based on qualitative factors. For example, Seeking Alpha contributor The Value Investor recently wrote that the company’s acquisition of Remy International will benefit the company long-term while Harsh Singh Chauhan believes the company’s asset turnover enables it to grow sales quickly. These qualitative issues are excellent to consider in the final stages of an investment decision, but first one must use quantitative metrics to determine the company’s intrinsic value.

Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits.

The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using the ModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – PASS
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data

Recent Price $50.63
MG Value $106.39
MG Opinion Undervalued
Value Based on 3% Growth $40.07
Value Based on 0% Growth $23.49
Market Implied Growth Rate 4.91%
Net Current Asset Value (NCAV) -$3.06
PEmg 18.32
Current Ratio 2.08
PB Ratio 3.28

Balance Sheet – March 2015

Current Assets $3,325,000,000
Current Liabilities $1,602,000,000
Total Debt $1,731,000,000
Total Assets $7,523,000,000
Intangible Assets $1,169,000,000
Total Liabilities $4,019,000,000
Outstanding Shares 227,100,000

Earnings Per Share

2015 (estimate) $3.10
2014 $2.86
2013 $2.70
2012 $2.09
2011 $2.23
2010 $1.54
2009 $0.12
2008 -$0.16
2007 $1.23
2006 $0.92
2005 $1.04

Earnings Per Share – ModernGraham

2015 (estimate) $2.76
2014 $2.49
2013 $2.12
2012 $1.60
2011 $1.24
2010 $0.74

Dividend History

Free Cash Flow

Conclusion

BorgWarner is not suitable for Defensive Investors but it does pass the initial requirements of the Enterprising Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, the inconsistent dividend history, and the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, it has grown its EPSmg (normalized earnings) from $1.24 in 2011 to an estimated $2.76 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market’s implied estimate for annual earnings growth of 4.91% over the next 7-10 years.

In recent years, the company’s actual growth in EPSmg has averaged nearly 25% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that BorgWarner is significantly undervalued at the present time.

Disclaimer:  The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

[/level-mg-stocks-screens-subscriber]

BorgWarner Inc. Quarterly Valuation – April 2015 $BWA

220px-BorgWarner.svgBorgWarner Inc. (NYSE:BWA) has shown very strong earnings growth over the last several years, which will immediately intrigue many investors. However, Benjamin Graham, the father of value investing, taught that investors must take emotion out of the equation, as the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment’s merits. Here is a look at how the company fares in the ModernGraham valuation model.

The model is inspired by the teachings of Benjamin Graham, and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.

In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another. By using theModernGraham method, one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.

BWA Chart

BWA data by YCharts

[level-free]
To read the rest of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.
[/level-free]
[level-mg-stocks-screens-subscriber]

Defensive Investor – Must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – Market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – Current ratio greater than 2 – FAIL
  3. Earnings Stability – Positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – Has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – Earnings per share has increased by at least 1/3rd over the last 10 years, using 3-year averages at the beginning and end of the period – PASS
  6. Moderate PEmg (price over normalized earnings) ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – Must pass at least 4 of the following 5 tests or be suitable for a Defensive Investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – Current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt-to-Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – Positive earnings per share for at least 5 years – PASS
  4. Dividend Record – Currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $60.54
MG Value $95.92
MG Opinion Undervalued
Value Based on 3% Growth $36.12
Value Based on 0% Growth $21.18
Market Implied Growth Rate 7.90%
Net Current Asset Value (NCAV) -$2.81
PEmg 24.30
Current Ratio 1.37
PB Ratio 3.82

Balance Sheet – December 2014

Current Assets $2,971,000,000
Current Liabilities $2,168,000,000
Total Debt $716,000,000
Total Assets $7,228,000,000
Intangible Assets $1,357,000,000
Total Liabilities $3,612,000,000
Outstanding Shares 228,000,000

Earnings Per Share

2014 $2.86
2013 $2.70
2012 $2.09
2011 $2.23
2010 $1.54
2009 $0.12
2008 -$0.16
2007 $1.23
2006 $0.92
2005 $1.04
2004 $0.97

Earnings Per Share – ModernGraham

2014 $2.49
2013 $2.12
2012 $1.60
2011 $1.24
2010 $0.74
2009 $0.44

Dividend History

BWA Dividend Chart

BWA Dividend data by YCharts

Conclusion

BorgWarner performs well in the ModernGraham model, and is suitable for Enterprising Investors. The Defensive Investor is concerned with the low current ratio, inconsistent dividend history, insufficient earnings stability over the last ten years, along with the high PEmg and PB ratios, while the Enterprising Investor is only concerned with the low current ratio. As a result, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

When it comes to valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $0.74 in 2010 to $2.49 for 2014. This is a strong level of demonstrated growth, which is well above the market’s implied estimate of 7.9% annual earnings growth over the next 7-10 years. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still estimates a growth figure much higher than the market’s implied rate. Therefore, the model returns an estimate of intrinsic value well above the current price, indicating the company is significantly undervalued at the present time.

[/level-mg-stocks-screens-subscriber]

BorgWarner Inc. Quarterly Valuation – January 2015 $BWA

220px-BorgWarner.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – December 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how BorgWarner Inc. (BWA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BorgWarner Inc. is a supplier of engineered automotive systems and components for powertrain applications. The Company’s products are manufactured and sold across the world, to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light-trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). It also manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. The Company operates in two business segments, which include Engine and Drivetrain.

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $54.78
MG Value $99.89
MG Opinion Undervalued
Value Based on 3% Growth $37.62
Value Based on 0% Growth $22.05
Market Implied Growth Rate 6.31%
Net Current Asset Value (NCAV) -$2.62
PEmg 21.11
Current Ratio 1.39
PB Ratio 3.36

Balance Sheet – September 2014

Current Assets $2,952,000,000
Current Liabilities $2,123,000,000
Total Debt $706,000,000
Total Assets $7,282,000,000
Intangible Assets $1,211,000,000
Total Liabilities $3,552,000,000
Outstanding Shares 228,700,000

Earnings Per Share

2014 (estimate) $3.17
2013 $2.70
2012 $2.09
2011 $2.23
2010 $1.54
2009 $0.12
2008 -$0.16
2007 $1.23
2006 $0.92
2005 $1.04
2004 $0.97

Earnings Per Share – ModernGraham

2014 (estimate) $2.59
2013 $2.12
2012 $1.60
2011 $1.24
2010 $0.74
2009 $0.44

Dividend History

Conclusion:

BorgWarner Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, lack of sufficient earnings stability over the last ten years, poor dividend history, along with the high PEmg and PB ratios. The Enterprising Investor is only concerned by the low current ratio.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.74 in 2010 to an estimated $2.59 for 2014.  This level of demonstrated growth is greater than the market’s implied estimate of 6.31% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

Be sure to check out previous ModernGraham valuations of BorgWarner Inc. (BWA) for greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on BorgWarner Inc. (BWA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in BorgWarner Inc. (BWA) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

BorgWarner Inc. Quarterly Stock Valuation – October 2014 $BWA

220px-BorgWarner.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Companies for the Defensive Investor – September 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how BorgWarner Inc. (BWA) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): BorgWarner Inc., is a global supplier of engineered automotive systems and components primarily for powertrain applications. The Company’s products are manufactured and sold worldwide, primarily to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light-trucks). The Company’s products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications). It also manufactures and sells its products to certain Tier One vehicle systems suppliers and into the aftermarket for light, commercial and off-highway vehicles. Effective February 28, 2014, BorgWarner Inc acquired the entire share capital of Gustav Wahler GmbH u Co KG.
BWA Chart

BWA data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $54.26
MG Value $107.18
MG Opinion Undervalued
Value Based on 3% Growth $40.37
Value Based on 0% Growth $23.66
Market Implied Growth Rate 5.49%
Net Current Asset Value (NCAV) -$2.59
PEmg 19.49
Current Ratio 1.40
PB Ratio 3.23

Balance Sheet – 6/30/2014

Current Assets $3,037,300,000
Current Liabilities $2,170,700,000
Total Debt $704,200,000
Total Assets $7,457,000,000
Intangible Assets $1,243,900,000
Total Liabilities $3,628,200,000
Outstanding Shares 227,900,000

Earnings Per Share

2014 (estimate) $3.35
2013 $2.89
2012 $2.49
2011 $2.23
2010 $1.52
2009 $0.20
2008 $0.99
2007 $1.27
2006 $1.01
2005 $1.08
2004 $0.92

Earnings Per Share – ModernGraham

2014 (estimate) $2.78
2013 $2.29
2012 $1.82
2011 $1.41
2010 $0.99
2009 $0.79

Dividend History
BWA Dividend Chart

BWA Dividend data by YCharts

Conclusion:

BorgWarner is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor has concerns with the low current ratio, the lack of stable dividend payments over the last ten years, and the high PB ratio.  The Enterprising Investor’s only initial concern is the low current ratio.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with research into the company and comparing it to other opportunities. As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.99 in 2010 to an estimated $2.78 for 2014.  This level of demonstrated growth outpaces the market’s implied estimate of 5.49% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on BorgWarner Inc. (BWA)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in BorgWarner Inc. (BWA) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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