BorgWarner Stock Headed To $43 Again?

We believe that BorgWarner’s stock (NYSE:BWA) has a good upside potential once fears surrounding the coronavirus outbreak subside, given its current price of around $29. Our conclusion is based on a detailed comparison of BorgWarner’s performance against the S&P 500 now as well as during the 2008 downturn in our interactive dashboard, How Did BorgWarner’s Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19, with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. BWA stock lost 39% of its value (vs. about 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 40% over recent weeks (vs. about 31% gain in the S&P 500) to its current level of $29. This is still well below the $43 figure at the start of the year.

BorgWarner’s Stock Fell Because The Situation On The Ground Has Changed

BWA’s stock has suffered as states and countries are on lockdown. As industries have halted production and services, the demand for automobiles has also taken a hit, which in turn affects the demand for auto components. We believe BWA’s Q2 results will confirm this reality with a drop in demand for products (Engine as well as DriveTrain), resulting in a drop in revenue growth.

But BorgWarner’s Stock Fared Worse During The 2008 Downturn

We see BWA’s stock declined from levels of around $21 in October 2007 (the pre-crisis peak) to below $8 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 63% of its value from its approximate pre-crisis peak. This marked a higher drop than the broader S&P, which fell by about 51%.

However, BWA recovered strongly post the 2008 crisis to about $15 in early 2010 – rising by 92% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period. 

Will BorgWarner’s Stock Recover Similarly From The Current Crisis?

BWA’s stock fell 39% from the market peak on February 19 to the low on March 23 compared to the 63% decline during the 2008 recession. Keeping this in mind, we believe it can potentially recover to levels of $38 or more once economic conditions begin to show signs of improvement. This marks a full recovery to the $43 level BWA stock was at the start of 2020. 

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting U.S. COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of the coronavirus outbreak’s impact on certain companies in the automotive industry like, including Ford and Harley-Davidson. The complete set of coronavirus impact and timing analyses is available here.

How do you think BorgWarner’s close competitor Lear has performed over recent years?

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