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Why Is BorgWarner (BWA) Up 5.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for BorgWarner (BWA). Shares have added about 5.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is BorgWarner due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

BorgWarner's Q1 Earnings & Sales Decline Y/Y

BorgWarner reported adjusted earnings of $1.05 per share in first-quarter 2022, declining from $1.21 recorded in the prior-year quarter. The bottom line, however, beat the Zacks Consensus Estimate of 80 cents per share. Higher-than-anticipated revenues across all segments resulted in the outperformance. The automotive equipment supplier reported net sales of $3,874 million, outpacing the Zacks Consensus Estimate of $3,639.8 million. The top line, however, declined 3.4% year over year.

Segmental Performance

Air Management: Net sales totaled $1,931 million in the reported quarter compared with $2,011 million in the year-ago period. The sales figure, however, topped the Zacks Consensus Estimate of $1,862 million. Adjusted EBIT of $257 million declined from $329 million recorded in the year-ago quarter but topped the consensus metric of $239 million.

e-Propulsion & Drivetrain: Sales from the segment were $1,390 million, down from $1,466 million a year ago. The sales figure, however, beat the Zacks Consensus Estimate of $1,350 million. The segment generated an adjusted EBIT of $119 million compared with $149 million in the corresponding period of 2021. The figure outpaced the consensus metric of $83 million.

Fuel Injection: Sales from the segment totaled $472 million, down from $475 million generated in the year-ago quarter. The metric, however, surpassed the consensus estimate of $451 million. The segment generated an adjusted EBIT of $52 million, up from $34 million recorded in the corresponding period of 2021.

Aftermarket: Sales from the segment totaled $205 million, up from $197 million in the year-ago quarter. The figure outpaced the Zacks Consensus Estimate of $201 million. The segment generated an adjusted EBIT of $24 million, up from $21 million.

Financial Position

As of Mar 31, 2022, BorgWarner had $1,501 million in cash equivalents compared with $1,841 million on Dec 31, 2021. In the March quarter, long-term debt was $4,223 million, down from $4,261 million recorded on Dec 31, 2021.

Net cash provided by operating activities was $116 million in the quarter under review. Capital expenditure and negative FCF totaled $177 million and $61 million, respectively.

2022 Projections

For full-year 2022 the company anticipates net sales within $15.5-$16 billion, indicating a decrease from the previous range of $15.9-$16.5 billion. Importantly, BorgWarner continues to envision electric vehicle revenues of more than $800 million for 2022, doubling from 2021 levels.

Adjusted operating margin is expected in the band of 9.8-10.2%, down from the earlier range of 10.2-10.7%. Adjusted net earnings are estimated to be within $3.9-$4.25, up from $3.71-$4.19 expected earlier. Free cash flow is projected in the band of $650-$750 million, down from the previous forecast of $700-$800 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -6.56% due to these changes.

VGM Scores

At this time, BorgWarner has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, BorgWarner has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

BorgWarner belongs to the Zacks Automotive - Original Equipment industry. Another stock from the same industry, Lear (LEA), has gained 8.1% over the past month. More than a month has passed since the company reported results for the quarter ended March 2022.

Lear reported revenues of $5.21 billion in the last reported quarter, representing a year-over-year change of -2.7%. EPS of $1.80 for the same period compares with $3.73 a year ago.

Lear is expected to post earnings of $1.21 per share for the current quarter, representing a year-over-year change of -50.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -33.2%.

Lear has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.


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