BorgWarner Earnings: Agility on Costs and a Portfolio Supporting ICE and EV Deliver a Solid Result

Full-year 2024 and fourth-quarter results for narrow-moat BorgWarner came in line with our expectations and the company’s own guidance. This is a strong result, highlighting the company’s ability to adapt its cost base to a softer demand environment quickly. Despite a continued decline in top-line growth in the fourth quarter, it achieved its 10% adjusted operating margin target and strong free cash flow growth. A large goodwill impairment was recognized on its eBusiness assets given the continued delay in BEV adoption. Despite this, the company continues to seek merger and acquisition opportunities to gain market share and build on adjacencies in its eBusiness; we include this in our forecasts. While the company's strong balance sheet positions it well to consolidate the market, we will be looking carefully at valuations paid on future acquisitions. In 2025, the company expects its markets to continue to decline, thus delivering flat top-line performance, but aims to maintain the 10% profitability level and absolute free cash flow achieved in 2024 (before M&A). We make no changes to out fair value estimate of $38 per share.