Monday, May 10, 2010

Bookkeeping: Beginning Stake in BorgWarner (BWA)

I try not to make it a habit to buy stocks up 9% on a session, but obviously today is a 'special' day where that is the rule rather than the exception. BorgWarner (BWA) is an auto supplier who I have been eyeing for a while as the sector has been on fire. It has one of the best reputations in the space, and its sub sector has some secular growth to it in terms of fuel efficiency - whereas many other names are just pure cyclicals. That said, less well run or smaller suppliers probably offer more upside as they are more up speculators' alleys, but I'll go with the 'safer' choice as I reviewed about 5-6 options in the space.

The company reported stellar earnings 2 weeks ago, with a huge increase in guidance - gapped up over $44 and of course filled that gap quickly during last week's correction. So we actually have a chance to enter about 10% below it's "gap up" price (i.e. the same price it was before earnings), even though the stock is sharply up today.

In terms of the day's range the stock has the 50 day moving average as its floor, and below that $37 was where it bottomed last Thursday and Friday. I'm going to start with a 1.1% exposure and see how the stock moves in the days and weeks to come, as this is my first time ever owning the stock.

A look at the earnings report:
  • Auto parts maker BorgWarner Inc (BWA) boosted its 2010 earnings outlook after posting a stronger-than-expected quarterly profit, propelled by improving industry production and rising demand for fuel-saving components such as turbochargers.
  • BorgWarner raised its 2010 earnings forecast by about 50 percent to a range of $2.20 to $2.50 per share, above Wall Street's average estimate of $1.74. The company also forecast revenue growth of 28 percent to 32 percent in 2010, up from its earlier range of 15 percent to 19 percent. Analysts on average expect sales to increase 23 percent to $4.9 billion, according to Thomson Reuters I/B/E/S.
  • BorgWarner reported first-quarter net income of $76.2 million, or 63 cents per share, compared with a year-earlier loss of $7 million, or 6 cents per share. Excluding one-time items, BorgWarner earned 65 cents per share. On that basis, analysts on average had expected profit of 41 cents per share on sales of $1.2 billion.
  • Sales rose 57 percent to $1.29 billion.
  • BorgWarner's focus on components that can improve fuel economy and performance place it in a growth area of the auto industry, with carmakers aiming to meet stricter mileage and emissions standards over the next several years.
  • Analysts say BorgWarner is uniquely positioned to benefit from rising demand for more efficient gasoline engines and cleaner-burning diesel cars as automakers race to achieve the 42 percent increase in fuel efficiency mandated by the U.S. government for 2016.
Long BorgWarner in fund; no personal position

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