On Thursday, CFRA announced a downgrade in the stock rating for BorgWarner (NYSE:BWA), changing it from Buy to Hold. This adjustment comes with a significant reduction in the price target, now set at $34.00, a decrease from the previous target of $50.00.
The revised 12-month target price is based on a 2025 P/E ratio of 7.5x, which represents a discount compared to BorgWarner's five-year average forward P/E of 11.2x. CFRA also revised its adjusted EPS estimates, reducing them to $3.85 from $4.20 for 2024, and to $4.55 from $4.85 for 2025.
BorgWarner reported its Q4 adjusted EPS at $0.90, a 29% decline from $1.26 in the same quarter of the previous year, falling short of the consensus estimate of $0.94. While the company saw a 6% increase in revenue to $3.52 billion, this figure was $110 million below the consensus. Additionally, the adjusted operating margin saw a slight contraction of 30 basis points to 9.4%.
The company has introduced its adjusted revenue and EPS guidance for 2024, projecting figures between $14.4 billion to $14.9 billion and $3.65 to $4.00, respectively. These projections fall below the consensus estimates of $15.3 billion in revenue and $4.25 EPS. Following the release of these figures and the disappointing guidance, BorgWarner's shares experienced a 6% decline.
The downgrade to Hold reflects concerns over the growth of electric vehicles (EVs), a significant factor in BorgWarner's business strategy. The slower adoption rates of EVs in the U.S. compared to other major markets may continue to impact investor sentiment toward the company. Despite BorgWarner's guidance indicating a strong 25%-40% growth in eProduct sales for 2024, expectations were reportedly more optimistic prior to the announcement.
InvestingPro Insights
In the context of CFRA's downgrade and the subsequent price target reduction for BorgWarner (NYSE:BWA), additional insights from InvestingPro could provide investors with a broader perspective on the company's financial health and market position.
InvestingPro Data highlights that BorgWarner is currently trading at a low earnings multiple, with a P/E Ratio (Adjusted) for the last twelve months as of Q3 2023 at just 5.96, which is lower than the industry average. This could indicate that the company's stock is undervalued relative to its earnings. Additionally, BorgWarner's market capitalization stands at $7.34 billion USD, reflecting its significant presence in the automotive industry.
An important metric for investors to consider is the company's liquidity. BorgWarner has maintained a solid financial footing as its liquid assets exceed short-term obligations. This suggests that the company is well-positioned to handle its immediate financial liabilities.
InvestingPro Tips also shed light on BorgWarner's consistent performance and potential outlook. Analysts have revised their earnings upwards for the upcoming period, signaling confidence in the company's profitability. Moreover, BorgWarner has demonstrated its commitment to shareholders by maintaining dividend payments for 11 consecutive years, with a current dividend yield of 1.3%.
Despite concerns over the EV market growth, BorgWarner's financial stability and the analysts' positive earnings revision could offer reassurance to investors. For those seeking more in-depth analysis and additional investment tips, InvestingPro offers further insights. There are currently 9 additional tips available for BorgWarner on InvestingPro, which can be accessed at https://www.investing.com/pro/BWA. To enhance your investment strategy with these insights, use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription.
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