BORGWARNER INC (BWA): what the price assumes

boothcheck covers BORGWARNER INC (BWA) but does not put one priced-in number on it: here the defensible answer is the evidence rather than a point estimate. boothcheck publishes no house fair value, target price, or buy/sell rating. Narrative composed 2026-07-25.

Generated: 2026-09-07 · Exported: 2026-09-09 · Source: https://boothcheck.com/report/BWA

Headline

FieldValue
TickerBWA
CompanyBORGWARNER INC
Sector / IndustryConsumer Cyclical
Current price$67.54/sh
CompositionFoundational products 82% / eProducts 18%

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin (value-band context)4.3%
Operating margin (mid-cycle)10.7%
Margin compression (value-band)-6.4pp
Trailing margin (depressed year)5.0%
Multiple paid10x mid-cycle operating income

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.

Solve inputs: computed at a 9% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

ReferenceValue
vs own history-0.41σ
cohort percentile (of 212 peers)17

Valuation X-Ray

The price is justified by relative-multiple; asset-based/earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset3.45x5expensive
Earnings1.65x3expensive
Relative1.18x2expensive
Growth1.37x2expensive

Families that justify the price: Relative Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.3%); the inversion above states its own rate.

Per-Model Detail (n=12)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$1.9135.36xyesFCF base $0.2B, growth 2% (input: historical growth), terminal g 2.2%, WACC 7.3%, 5yr projection (excluded from median)
DCF Exit MultipleGrowth$51.541.31xyesExit EV/EBITDA: 10.8x / 12.8x / 14.8x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelativenoP/E 23.95x (blended: static sector reference 20x + trailing (TTM) 33x), scenarios: 20.3x / 23.9x / 27.6x (bear / base = reference held flat / bull), EV/EBITDA 13x
Simple DDMGrowthno
Two-Stage DDMGrowthno
Simple Excess ReturnAsset$22.033.07xyesBV/sh $27.60, ROE (TTM) 7.4%, ke 9.3%
Two-Stage Excess ReturnAsset$19.593.45xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$46.971.44xyesRev $14.3B, growth 2% (input: historical growth; tapered), Terminal P/S: 0.8x / 1.0x / 1.1x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$47.701.42xyesEPS $2.03, growth 23% (input: historical EPS growth), PEG=1.41 (Fair)
Margin TrajectoryGrowthno
Earnings Power ValueEarnings$41.001.65xyesNormalized EBIT (5y avg op income, one-time charges added back) $1.15B × (1−22%) / WACC 7.3% → EPV (no growth)
Residual IncomeAsset$19.233.51xyesBV $27.60 + 5yr PV of (ROE (TTM) 7.4% − Kₑ 9.3%) × BV; BV grows 4.8%/yr
Graham NumberAsset$35.501.90xyes√(22.5 × EPS $2.03 × BVPS $27.60) — Graham's conservative floor
EV/EBITDA RelativeRelativenoEBITDA $1.40B × sector EV/EBITDA 13.0x
FCF YieldEarnings$0.016754.00xyesFCF $226.0M / Kₑ 9.3% — zero-growth perpetuity (excluded from median)
SBC-Adj FCF YieldEarnings$0.016754.00xyesSBC-adj FCF $0.18B (FCF $0.23B − SBC $0.04B) capitalized at Kₑ (excluded from median)
Ben Graham FormulaEarnings$65.501.03xyesEPS $2.03 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$11.385.93xyesBV $27.60 × (ROIC 3.0% / WACC 7.3%)
P/Sales SectorRelativenoRevenue $14.34B × sector P/S 1.5x
PEG Fair ValueRelative$71.550.94xyesEPS $2.03 × (PEG 1.5 × growth 23.5% (input: historical EPS growth)) → PE 35.2x
Earnings YieldEarnings$21.953.08xyesEPS $2.03 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelativeno
Clinical Phase NPVGrowthno
MertonAssetno
V5 Mechanicalno

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

UnitRoleValuation basisRevenueReported profitValue evidenceStatus
Turbos & Thermal Technologiesoperatingenterprise$5.8bwithheldunresolved no unit value
Drivetrain & Morse Systemsoperatingenterprise$5.6bwithheldunresolved no unit value
PowerDrive Systemsoperatingenterprise$2.3bwithheldunresolved no unit value
Battery & Charging Systemsoperatingenterprise$590.0mwithheldunresolved no unit value

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

FieldValue
Net debt$1.6b
Net debt / NOPAT (after-tax)1.30x
Net debt / operating income (pre-tax)1.02x
Interest coverage15.9x
Share count CAGR (buyback)-3.5%
Burning cashno

Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 10.7%); the trailing year was depressed.

Bullet Takeaways

Bull Case

The income statement and the business are currently describing two different years. In the fourth quarter of 2025 BorgWarner wrote down $167 million of property, plant and equipment tied to its Battery & Charging Systems operations, valuing the assets on what the 10-K calls an "estimated orderly liquidation value based on the Company's determination of the highest and best use of the relevant assets", and took a further $31 million of restructuring costs in PowerDrive Systems. Those charges sit inside the trailing twelve months. Any method that capitalizes trailing earnings or trailing return on equity is therefore capitalizing the cost of exiting an electric-vehicle build-out, and calling that the earnings power of a company that supplies turbochargers, transmissions and thermal systems to most of the world's automakers.

What the operating business actually did in the most recent quarter is a different picture. First-quarter 2026 net sales were $3,533 million, up about 1% as reported, with U.S. GAAP operating income of $336 million, a 9.5% margin, and GAAP net earnings of $1.16 per diluted share. For the full year the company guides U.S. GAAP operating income to a band of 9.7% to 9.9% of net sales. That is a business generating close to a tenth of every sales dollar as operating profit, in a year in which it expects its own light-vehicle markets to be down 3% to roughly flat.

The order book behind it is unglamorous and long-dated, which in this industry is the point. During the first quarter the company announced twelve new business awards, among them a seven-year contract extension covering eight families of engine, machine, power module and battery management controllers with a large off-highway engine manufacturer, three turbocharger program extensions plus a conquest award with a major European automaker phasing in from 2026 through 2029, and conquest variable-turbine-geometry turbocharger and exhaust-gas-recirculation cooler awards with a European commercial vehicle maker for 2028 production. Auto-supply awards are booked years before they earn anything, and they are the closest thing to visibility this sector offers.

Capital is coming back rather than going into more capacity. The 10-K records a repurchase authorization under which $400 million of common stock had been bought as of December 31, 2025, and the company returned roughly $185 million to shareholders in the first quarter of 2026, $150 million of it through repurchases and $35 million as a dividend. The share count has fallen about 3.4% a year over the past four years. Buying back stock at ten times operating profit retires considerably more earnings power per dollar than buying it at the multiples several of these peers carry, and unlike a capacity investment it cannot be impaired later.

Bear Case

Follow the capital and the bear case writes itself. BorgWarner spent years building capacity for an electrification transition that arrived on someone else's schedule. The 10-K describes the moment the arithmetic broke: in the fourth quarter of 2024 the company saw "deterioration in the forecast of its PowerDrive Systems and Battery & Charging Systems businesses due to further decreases in demand for eProducts as compared to the Company's expectations as a result of electric vehicle adoption volatility across different regions", having "made capital investments to support new eProducts business that has been delayed and/or launched" later than planned. What followed was a $167 million property write-down in the fourth quarter of 2025, $31 million of restructuring in PowerDrive Systems, and an exit from the charging business that took roughly $56 million of sales with it. Shareholder money went in as capacity and came out as an impairment line.

The returns confirm it. Trailing return on equity runs at 6.6% against a cost of equity around 9.3%, which means the business has recently been earning less on its book than the equity market requires for holding it. That is not an abstraction: it is precisely why the asset-based methods land so far below the current quote, several multiples below it. Book value works out to 26.30 dollars a share. A company that consistently earns below its cost of equity does not deserve a premium to book, and this one currently trades at roughly two and a half times it.

Concentration compounds the exposure. Sales to the top ten customers were 71% of the total for 2025, and 84% of consolidated net sales were produced outside the United States, with China, Mexico, Germany, Poland, South Korea and Hungary each exceeding 5%. That is a business whose revenue depends on the production schedules of a handful of automakers and whose cost base sits across six currencies and every active trade dispute. GNTX, discussing 2026, describes the same pressure from the other side of the industry, noting external headwinds in the form of tariff-related costs against annual customer price reductions. Price-down is the permanent condition of automotive supply; tariffs are the variable on top of it.

And the shrinking part of the business is the part that was supposed to be the future. eProducts is 18% of revenue, and the company's own 2026 guidance builds in a further decline of approximately $210 million in Battery Energy Systems sales, which it puts at roughly a 1.5% headwind to organic growth. Guidance also has organic sales down 3.5% to 1.5% for the year. The bull argument that the multiple is low enough to survive a decline is fair; it also concedes that a decline is what is being underwritten. Buying back stock while revenue contracts is a defensible allocation of cash and a poor substitute for a growth engine, and the market appears to be pricing the second observation rather than the first.

Valuation

Take today's quote of $64.46 and ask what it assumes, and the answer comes back as a floor rather than a forecast. At roughly ten times what the business earns in operating income, the price already sits beneath what even a steady annual decline in operating profit would warrant. There is no growth requirement embedded here to argue about. The market is not asking BorgWarner to expand; it is pricing a business it expects to shrink.

The methods split in an unusual direction as a result. Peer multiples are the family that defends the price, landing close to it. The asset-value approaches land far below, with the price sitting several times above their central estimate, and the earnings-power lenses also finish under it. That is the reverse of the pattern a stretched growth stock produces, and the mechanism behind it is specific rather than mysterious: the book-value methods work by comparing return on equity to the cost of equity, and on trailing figures BorgWarner earned 6.6% against a required 9.3%. Feed a below-cost return into those models and they subtract value from book rather than adding it. Book value per share is $26.30. The trailing period they are reading includes the fourth-quarter 2025 electric-vehicle write-down.

Against its own cohort the multiple sits in the lower half of the peer range, and the profitability spread across the cohort explains why the range is wide. ALSN earns a 22.6% operating margin on $3.65 billion of revenue and GNTX 18.4% on $2.63 billion, both well above BorgWarner's trailing 7.8%. Further down, PHIN runs 7.3% on $3.57 billion, ALV 9.7% on $10.99 billion, APTV 5.4% on $20.66 billion and LEA 3.6% on $23.52 billion. BorgWarner sits in the middle of a cohort whose valuations track profitability more closely than scale. Its own 2026 guidance would place it a step higher in that ordering than the trailing figure does, calling for 9.7% to 9.9% of net sales to reach operating income under U.S. accounting rules.

The balance sheet is not the constraint. Operating income covers the interest bill close to eleven times over. The 10-K reports no outstanding borrowings under the commercial paper program at either the end of 2025 or the end of 2024, with combined capacity under that program and the multi-currency revolving credit facility limited to 2.0 billion dollars, and states the company expects to remain in compliance with all covenants through at least the next twelve months. Alongside that sits about $251 million of equity stakes held outside the operating business, small against a market value near $13.4 billion but real, and recoverable independently of how the supply business performs.

What the price is really waiting on is whether reported profitability converges on operating profitability. The gap between the two is the write-down, and write-downs do not repeat on the same assets.

Catalysts

The first-quarter print on May 6, 2026 gave the clearest read available on the underlying business. Net sales were $3,533 million, up about 1% as reported and down 4.2% organically, with U.S. GAAP operating income of $336 million, equal to 9.5% of net sales, and GAAP net earnings of $1.16 per diluted share. Operating cash flow was $152 million and free cash flow $13 million, a seasonally light figure in a business whose working capital swings with production schedules.

Full-year guidance was set alongside it, and the shape matters more than any single figure. The company expects 2026 net sales of $14.0 billion to $14.3 billion, with organic sales down 3.5% to 1.5% against weighted light vehicle markets it expects to be down 3% to approximately flat. U.S. GAAP operating income is guided to 9.7% to 9.9% of net sales and U.S. GAAP net earnings to $4.70 to $4.87 per diluted share, with operating cash flow of $1,600 million to $1,700 million and free cash flow of $900 million to $1,100 million. Margin expansion guided into a flat-to-declining market is a cost story, not a demand story, and it is the assumption most exposed to the next quarter.

Two forward items are worth tracking beyond the quarterly rhythm. The company has been extending into data center and industrial applications, adding battery energy storage systems and bi-directional microgrid inverters, with a turbine generator system launch planned for 2027 and B-samples already delivered to the customer. Separately, the twelve new business awards announced during the quarter, spanning off-highway controllers, turbochargers for European passenger and commercial vehicles, dual-clutch and variable-cam-timing systems in Asia, and three eMotor programs with Asian automakers, begin production in phases from 2026 through 2029. None of them move this year's revenue. All of them determine whether the decline being priced in is temporary or terminal.

Peer Cohorts (Per Segment, With Filing Citations)

Turbos & Thermal Technologies (reported)

Drivetrain & Morse Systems (reported)

PowerDrive Systems (reported)

Battery & Charging Systems (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

BorgWarner first-quarter 2026 earnings release, May 6, 2026

View the full interactive BWA report on boothcheck