Nomura: BorgWarner Is 'Attractively Priced' At Current Levels

Automotive parts supplier company BorgWarner Inc. BWA is well positioned to take full advantage of the global electrification trend, and investors should be buyers of the "attractively priced" stock, according to Nomura.

The Analyst

Nomura analyst Anindya Das initiated coverage of BorgWarner with a Buy rating and $41 price target.

The Thesis

The global auto sector could show declining profit as powertrain electrification could come under heavy regulation, Das wrote in the note. However, BorgWarner already transformed itself ahead of a shift to electrification from a mostly combustion powertrain parts maker to a powertrain-agnostic propulsion systems maker.

BorgWarner also stands out to stand out among its peers for three reasons, including: expectations for faster sales growth due to higher sales of components for hybrid and electric vehicle powertrains, a strong position in oligopolistic markets and low exposure to China tariffs and minimal concerns from Brexit.

The company should be able to generate an EBITDA compounded annual growth rate of 12.4% through 2021, the analyst wrote. This growth rate is superior compared to its peers that are likely to grow EBITDA by 10.5% CAGR over the same time period. As such, BorgWarner's stock warrants a premium one-year-forward P/E premium valuation of 9.3 times versus the average group at 8.5 times.

Shares of BorgWarner are now trading at 7.1 times fiscal 2020 EPS which implies the stock is trading at an attractive discount to its fair value, the analyst wrote.

Price Action

Shares of BorgWarner were trading flat Tuesday afternoon.

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