Crista Huff

Morgan Stanley Research reported this week on the North American International Auto Show in Detroit.  Analysts were surprisingly pleased at the industry earnings outlook, despite poor U.S. and European economies. "The only things that rival the unseasonably mild temps and bright sunshine in Detroit are the positive outlooks from many of the companies here."  Morgan Stanley commented on Borg Warner as standing out among the group, "The company with the highest Euro exposure in the group guided 10% above consensus. Who would've thunk it?"

Borg Warner Inc. (BWA, $72.53) is a global supplier of engineered automotive systems and components, primarily for powertrain applications.   Their products are sold to virtually all global OEMs.

As I comment about Borg Warner today, the first thing to note is that the projected earnings from Wall Street were calculated before BWA gave analysts higher earnings guidance for the coming year.  The former consensus estimate projections had BWA increasing earnings per share (EPS) 18% in 2012 and 21% in 2013.  In addition, BWA is projecting record margins in fiscal 2012.

The stock carries a 2012 price earnings ratio (PE) of 13.9 before the coming earnings estimate revisions.  As EPS estimates are revised upward, the PE adjusts downward, indicating a strong growth company with a PE appealing to a value investor, thus broadening the base of likely investors.  BWA's low and high PE's during the last decade have been 7 and 24.

Today, Standard & Poor's assigned Borg Warner a "Medium" Qualitative Risk Assessment. "Our risk assessment reflects BWA's exposure to the cyclical and very competitive vehicle components market, its limited ability to raise prices, and rising exposure to developing markets, offset by our view of its strong product portfolio, technology focus and balance sheet."

BWA stock rose steadily prior to the 2008 Financial Meltdown, fell dramatically, completely recovered by 2010 and kept rising, reaching new highs in early 2011.  At that point the stock established a new trading range and had a pullback with the weak stock market beginning August 2011.

The stock has been trading $58-$81 for just over a year.  With most good stocks pulling out of their lower Fall of 2011 trading ranges and heading back up, I expect BWA to head back towards last year's highs, then trade for a while in the $65-$81 range.


Crista Huff

Crista Huff is a retired stockbroker from a NYSE member investment firm. She writes about market-timing at Goodfellow LLC and is active politically.
 
TOWNHALL DAILY: Be the first to read Crista Huff's column. Sign up today and receive Townhall.com daily lineup delivered each morning to your inbox. Release of Liability: Through use of this website viewing or using you agree to hold www.GoodfellowLLC.com and its employees harmless and to completely release www.GoodfellowLLC.com and its employees from any and all liability due to any and all loss (monetary or otherwise), damage (monetary or otherwise), or injury (monetary or otherwise) that you may incur. Goodfellow LLC and its employees are not paid by third parties to promote nor disparage any investment. Recommendations are based on hypothetical situations of what we would do, not advice on what you should do. Neither Goodfellow LLC nor its employees are licensed investment advisors, tax advisors, nor attorneys. Consult with a licensed investment advisor and a tax advisor to determine the suitability of any investment.
TOWNHALL FINANCE DAILY

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!