Tuesday, February 23, 2016

Seeking Alpha: Lost Credibility And Shifting Priorities Hammer BorgWarner

Wall Street shows no mercy when its favorites don't live up to their multiples, and BorgWarner (NYSE:BWA) is a case in point. This powertrain specialist has not only delivered a series of disappointing earnings and guidance reports, but the company has seen a sharp contraction in its backlog and its content share growth. Now concerns are building that BorgWarner's focus on internal combustion engine (or ICE) technologies are going to leave it outside of the industry's sweet spot as companies like Volkswagen (OTCPK:VLKAY) accelerate their development of hybrid and electric vehicles.

To me, a lot of this sounds like the familiar Wall Street whipsawing between "can do no wrong" and "can't do anything right" when analysts have to shift from justifying high relative valuations to explaining why those prior justifications are no longer relevant. I do think BorgWarner has some serious growth and credibility challenges to address in the short term, but I think ICE-powered passenger vehicles are going to be around for a while, and I wouldn't count out BorgWarner as a player on the electrical side.

These shares could be undervalued by 50% or more, but the company must return to reliable average-growth with improved free cash flow margins. I still like the long-term prospects for the company, but the stock may have a tougher go in the short term.

Follow this link for the full article:
Lost Credibility And Shifting Priorities Hammer BorgWarner

No comments: