BORGWARNER INC (BWA): what the price requires

The current priced-in claim for BORGWARNER INC (BWA) is temporarily suppressed because the live engine record is unavailable. The dated report remains a snapshot, not a current market read.

Generated: 2026-07-19 · Source: https://boothcheck.com/report/BWA

Headline

FieldValue
TickerBWA
CompanyBORGWARNER INC
Current price$63.76/sh
CompositionFoundational products 82% / eProducts 18%

What The Price Requires (Inversion)

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

FieldValue
Inversion basiswhole-company
Operating margin needed4.9%
Operating margin today7.8%
Margin compression implied-2.9pp
Multiple paid10x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration 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 9.1% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range

ReferenceValue
vs own history-0.41σ
cohort percentile (of 212 peers)15
implied end-window share0%

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
Asset4.07x5expensive
Earnings1.53x3expensive
Relative1.17x5expensive
Growth1.43x1expensive

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 7.2%); the inversion above states its own rate.

Per-Model Detail (n=14)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$0.00—noReference only (OCF-based, capex excluded): OCF $0.2B
DCF Exit MultipleGrowth$0.00—noNegative/zero FCF or EBITDA — equity value floored at $0
Relative ValuationRelative$54.431.17xyesP/E 25.01x (blended: static sector reference 20x + trailing (TTM) 37x), scenarios: 21.2x / 25.0x / 28.9x (bear / base = reference held flat / bull), EV/EBITDA 13x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$18.793.39xyesBV/sh $26.30, ROE (TTM) 6.6%, ke 9.3%
Two-Stage Excess ReturnAsset$15.664.07xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$44.611.43xyesRev $14.3B, growth 2% (input: historical growth; tapered), Terminal P/S: 0.8x / 0.9x / 1.1x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$20.643.09xyesEPS $1.72, growth 10% (input: historical EPS growth), PEG=3.60 (Overvalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$47.261.35xyesNormalized EBIT (5y avg op income, one-time charges added back) $1.29B × (1−22%) / WACC 7.2% → EPV (no growth)
Residual IncomeAsset$15.234.19xyesBV $26.30 + 5yr PV of (ROE (TTM) 6.6% − Kₑ 9.3%) × BV; BV grows 4.3%/yr
Graham NumberAsset$31.912.00xyes√(22.5 × EPS $1.72 × BVPS $26.30) — Graham's conservative floor
EV/EBITDA RelativeRelative$64.340.99xyesEBITDA $1.34B × sector EV/EBITDA 13.0x
FCF YieldEarnings——no—
SBC-Adj FCF YieldEarnings——no—
Ben Graham FormulaEarnings$41.631.53xyesEPS $1.72 × (8.5 + 2×10.2%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$10.006.38xyesBV $26.30 × (ROIC 2.7% / WACC 7.2%)
P/Sales SectorRelative$103.220.62xyesRevenue $14.33B × sector P/S 1.5x
PEG Fair ValueRelative$26.292.43xyesEPS $1.72 × (PEG 1.5 × growth 10.2% (input: historical EPS growth)) → PE 15.3x
Earnings YieldEarnings$18.593.43xyesEPS $1.72 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$3.9b
Net debt / NOPAT (after-tax)4.51x
Net debt / operating income (pre-tax)3.51x
Interest coverage10.9x
Share count CAGR (buyback)-6.4%
Burning cashno

Bullet Takeaways

At about $72, BorgWarner trades near 11 times company-wide operating income. Inverted, the price assumes operating profit declines about 1.4% a year for five years, a mild-decline assumption that is undemanding for an auto-parts maker but reflects the market's skepticism about the sector.

The trailing earnings are depressed by the EV-transition investment cycle, so most valuation methods sit below the price on current numbers. Adjusted profitability is healthier than the headline: the first quarter of 2026 delivered an adjusted operating margin of 10.5%, up 50 basis points, and 12% adjusted EPS growth despite soft volumes.

The cash story is the anchor. Full-year free cash flow is guided to $900 million to $1.1 billion, the company returned about $630 million to shareholders in 2025, and the share count is shrinking about 3.4% a year. A new data-center turbine-generator award adds an unexpected non-automotive growth avenue.

Bull Case

Begin with the biggest fear, because for an auto-parts supplier it is the whole bear thesis: the shift to electric vehicles threatens to strand a business built on combustion-engine components. That is the risk the low multiple is pricing. But the data does not support a company being disrupted out of existence; it supports one navigating the transition with content on both sides of it. BorgWarner reports in two parts, Foundational products (the combustion and broadly applicable powertrain components, about 82% of revenue) and eProducts (hybrid and electric technologies, about 18%), and the eProducts business grew roughly 23% in 2025 on demand for its hybrid and electric technologies in Europe and Asia. The combustion business still generates the cash, hybrids are taking share faster than pure EVs in many markets and use BorgWarner content too, and the EV portfolio is growing fast. The fear assumes a cliff; the data shows a ramp on one side funded by a durable cash engine on the other.

The profitability underneath is better than the depressed headline suggests. First-quarter 2026 GAAP operating margin fell to 9.5% on the EV-investment drag, but the adjusted operating margin actually expanded 50 basis points to 10.5% and adjusted EPS grew 12%, even as organic sales declined about 4% on soft global vehicle production. That is the signature of a well-run supplier: pulling cost and mix levers to expand margin through a soft demand patch. The company guides full-year adjusted operating margin to 10.7% to 10.9% and free cash flow to $900 million to $1.1 billion, helped by exiting the loss-making charging business. The 10-K notes management acted decisively when EV economics deteriorated, restructuring "its PowerDrive Systems and Battery & Charging Systems businesses" rather than throwing good money after bad (FY2025 10-K, accession 0000908255-26-000011).

The capital return and the new optionality close the case. BorgWarner returned about $630 million to shareholders in 2025 and is shrinking its share count roughly 3.4% a year through buybacks, so per-share value compounds even with flat revenue. And the company just opened an entirely new, non-automotive avenue: a turbine-generator system award for the data-center market, which management frames as more than $300 million of expected 2027 sales, a sign its powertrain and thermal engineering can extend beyond cars into the AI-power buildout. At about 11 times operating income with the price assuming gentle decline, a supplier that is expanding adjusted margins, throwing off a billion dollars of free cash flow, buying back stock, and finding growth in both EVs and data centers is being valued for a future worse than the one the data describes.

Bear Case

The fragile assumption in the price is that the new growth stories, eProducts and the data-center turbine award, offset the structural decline in the legacy business fast enough and profitably enough. That is not yet proven. Organic sales fell about 4% in the first quarter of 2026 as global vehicle production softened, and the Foundational combustion business that still provides 82% of revenue and most of the profit faces a slow secular decline as the vehicle fleet electrifies. The eProducts business is growing 23%, but it is smaller and historically lower-margin, and the company already had to restructure its EV operations when the economics disappointed, noting "deterioration in the forecast of its PowerDrive Systems and Battery & Charging Systems businesses" (FY2025 10-K, accession 0000908255-26-000011). The data-center turbine award is exciting but small, framed at more than $300 million of 2027 sales against a $14 billion revenue base, and entirely unproven as a business line. Betting that these new streams replace combustion profit cleanly is the leap of faith the price requires.

The cyclical and customer-concentration risk is the second pressure. BorgWarner sells to automakers whose production volumes swing with the economy, and demand is currently soft. Worse, those same customers are also competitors: the 10-K warns that OEMs "do manufacture products for their own uses that directly compete with our products," and "have elected and could elect" to bring more of that work in-house (FY2025 10-K, accession 0000908255-26-000011). As automakers build their own EV powertrains, the addressable content per vehicle for an independent supplier can shrink even as total EV volume grows. A supplier squeezed between cyclical volumes and customers insourcing its products has limited pricing power.

Then there is leverage, tariffs, and the valuation gap. Net debt sits near $3.9 billion, and the 10-K cautions that higher indebtedness and interest costs "may increase our vulnerability to adverse general economic and industry conditions" (FY2025 10-K, accession 0000908255-26-000011). A new 10% global tariff that took effect in early 2026 raises input costs on a globally sourced supply chain, pressuring the very margin the bull case relies on. On valuation, the prep flags that no family reaches the price on a strict basis: the asset and excess-return reads sit in the teens against depressed returns on equity, the earnings-power value near $39, and even the relative read near $56, all below the current price. The blended read across the methods is near $20. The price assumes a clean transition, gentle decline, and the new growth avenues delivering. If global production stays weak, tariffs bite, or eProducts and the data-center business underdeliver, the methods say there is meaningful downside to where the business is actually valued.

Valuation

BorgWarner trades near 11 times company-wide operating income at about $72 (June 27, 2026), which inverts into a benign assumption: operating profit declining roughly 1.4% a year for five years. That is an undemanding bar, and it is within the range of what the business has recently delivered, which is the model's way of saying the price is consistent with a slow-decline scenario rather than a growth one. The complication is that trailing operating profit is depressed by the EV-transition investment cycle, so the apparent 11-times multiple understates the normalized earnings power the company is working back toward.

The method families land mostly below the current price on trailing numbers. The relative-valuation read is closest, near $56 on a blended sector and trailing multiple. The earnings-power value, which capitalizes normalized operating income, lands near $39, and the asset and excess-return methods sit in the teens against a book value of about $26.30 per share and a currently depressed 6.6% return on equity. The discounted-future-market-cap read lands near $50. The blended read across applicable methods is near $20, well below the price, reflecting how much the trailing earnings understate the business and how much the price leans on a recovery to normalized margins.

The honest conclusion: the price is undemanding on the operating multiple but unsupported by the static methods on depressed trailing earnings, so it rests on a margin and free-cash-flow recovery the company is already showing signs of. The bet is that adjusted operating margin holds near 10.7% to 10.9%, free cash flow stays around a billion dollars, the buyback keeps shrinking the share count, and the eProducts and data-center growth offset the combustion decline. If that plays out, an 11-times multiple on a recovering, cash-generative supplier is reasonable to cheap. If global vehicle production stays soft, tariffs compress the margin, or the EV and data-center bets underdeliver, the methods point to a price well above where the business is currently valued.

Catalysts

The recent print showed margin resilience through soft demand. First-quarter 2026 net sales rose about 1% to $3.53 billion (organic down 4.2%), net earnings were $242 million with EPS of $1.16, and while GAAP operating margin fell 280 basis points to 9.5%, adjusted operating margin expanded 50 basis points to 10.5% and adjusted EPS grew 12%. (PR Newswire, stocktitan) Full-year 2026 guidance calls for sales of $14.0 to $14.3 billion, adjusted operating margin of 10.7% to 10.9%, and free cash flow of $900 million to $1.1 billion.

The surprise catalyst is the move beyond cars. BorgWarner announced a turbine-generator system award for the data-center market, which management frames as more than $300 million of expected 2027 sales, and the stock jumped more than 20% in a session on the news. (stocktitan) On the core business, light-vehicle eProducts grew about 23% in 2025 on hybrid and electric demand in Europe and Asia, while the company exited its loss-making charging business to lift margins.

Capital return and external risks frame the rest. BorgWarner returned about $630 million to shareholders in 2025 through dividends and buybacks. (BorgWarner) A 10% global tariff took effect in early 2026, a headwind to a globally sourced supply chain. Analyst sentiment is mixed-to-positive, with a Buy-leaning consensus and Bank of America raising its target to $78 while keeping a Neutral rating. (public.com) The things to watch: global vehicle production trends, whether adjusted margins hold against tariffs, the ramp of the data-center turbine business, eProducts growth and profitability, and the pace of buybacks.

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.

View the full interactive BWA report on boothcheck