Intrinsic value of BorgWarner Inc. - BWA

Previous Close

$40.95

  Intrinsic Value

$60.78

stock screener

  Rating & Target

buy

+48%

Previous close

$40.95

 
Intrinsic value

$60.78

 
Up/down potential

+48%

 
Rating

buy

We calculate the intrinsic value of BWA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 8.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  10,741
  10,988
  11,270
  11,587
  11,938
  12,324
  12,743
  13,198
  13,687
  14,213
  14,774
  15,374
  16,013
  16,691
  17,411
  18,174
  18,982
  19,836
  20,738
  21,691
  22,697
  23,757
  24,875
  26,052
  27,293
  28,598
  29,973
  31,419
  32,941
  34,541
Variable operating expenses, $m
  8,996
  9,198
  9,428
  9,687
  9,974
  10,288
  10,631
  11,002
  11,401
  11,830
  12,059
  12,549
  13,070
  13,624
  14,211
  14,834
  15,493
  16,191
  16,927
  17,705
  18,526
  19,391
  20,303
  21,264
  22,277
  23,343
  24,465
  25,645
  26,887
  28,193
Fixed operating expenses, $m
  537
  548
  560
  573
  585
  598
  611
  625
  639
  653
  667
  682
  697
  712
  728
  744
  760
  777
  794
  811
  829
  847
  866
  885
  905
  924
  945
  966
  987
  1,009
Total operating expenses, $m
  9,533
  9,746
  9,988
  10,260
  10,559
  10,886
  11,242
  11,627
  12,040
  12,483
  12,726
  13,231
  13,767
  14,336
  14,939
  15,578
  16,253
  16,968
  17,721
  18,516
  19,355
  20,238
  21,169
  22,149
  23,182
  24,267
  25,410
  26,611
  27,874
  29,202
Operating income, $m
  1,208
  1,242
  1,281
  1,327
  1,379
  1,437
  1,501
  1,571
  1,648
  1,730
  2,048
  2,144
  2,246
  2,355
  2,472
  2,596
  2,728
  2,869
  3,017
  3,175
  3,342
  3,519
  3,705
  3,903
  4,111
  4,331
  4,564
  4,809
  5,067
  5,339
EBITDA, $m
  1,779
  1,821
  1,869
  1,925
  1,988
  2,059
  2,136
  2,221
  2,312
  2,412
  2,518
  2,633
  2,756
  2,887
  3,026
  3,175
  3,332
  3,500
  3,677
  3,865
  4,064
  4,274
  4,497
  4,732
  4,980
  5,241
  5,517
  5,808
  6,115
  6,438
Interest expense (income), $m
  100
  114
  120
  128
  136
  146
  156
  168
  180
  194
  209
  225
  242
  260
  279
  299
  321
  344
  368
  394
  421
  450
  480
  512
  545
  581
  618
  657
  699
  742
  788
Earnings before tax, $m
  1,094
  1,121
  1,154
  1,191
  1,234
  1,281
  1,333
  1,391
  1,453
  1,521
  1,824
  1,902
  1,986
  2,077
  2,173
  2,275
  2,385
  2,500
  2,624
  2,754
  2,892
  3,039
  3,194
  3,357
  3,530
  3,713
  3,906
  4,110
  4,325
  4,551
Tax expense, $m
  295
  303
  312
  322
  333
  346
  360
  376
  392
  411
  492
  514
  536
  561
  587
  614
  644
  675
  708
  744
  781
  820
  862
  906
  953
  1,003
  1,055
  1,110
  1,168
  1,229
Net income, $m
  799
  819
  842
  870
  901
  935
  973
  1,015
  1,061
  1,110
  1,331
  1,389
  1,450
  1,516
  1,586
  1,661
  1,741
  1,825
  1,915
  2,010
  2,111
  2,218
  2,331
  2,451
  2,577
  2,711
  2,851
  3,000
  3,157
  3,322

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  10,298
  10,535
  10,805
  11,109
  11,446
  11,816
  12,218
  12,654
  13,123
  13,627
  14,165
  14,740
  15,352
  16,003
  16,693
  17,425
  18,199
  19,018
  19,883
  20,797
  21,761
  22,778
  23,849
  24,978
  26,167
  27,419
  28,737
  30,124
  31,583
  33,117
Adjusted assets (=assets-cash), $m
  10,298
  10,535
  10,805
  11,109
  11,446
  11,816
  12,218
  12,654
  13,123
  13,627
  14,165
  14,740
  15,352
  16,003
  16,693
  17,425
  18,199
  19,018
  19,883
  20,797
  21,761
  22,778
  23,849
  24,978
  26,167
  27,419
  28,737
  30,124
  31,583
  33,117
Revenue / Adjusted assets
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
Average production assets, $m
  4,135
  4,230
  4,339
  4,461
  4,596
  4,745
  4,906
  5,081
  5,270
  5,472
  5,688
  5,919
  6,165
  6,426
  6,703
  6,997
  7,308
  7,637
  7,984
  8,351
  8,738
  9,146
  9,577
  10,030
  10,508
  11,010
  11,540
  12,096
  12,682
  13,298
Working capital, $m
  859
  879
  902
  927
  955
  986
  1,019
  1,056
  1,095
  1,137
  1,182
  1,230
  1,281
  1,335
  1,393
  1,454
  1,519
  1,587
  1,659
  1,735
  1,816
  1,901
  1,990
  2,084
  2,183
  2,288
  2,398
  2,514
  2,635
  2,763
Total debt, $m
  2,227
  2,364
  2,521
  2,698
  2,894
  3,108
  3,342
  3,595
  3,868
  4,161
  4,474
  4,808
  5,163
  5,541
  5,942
  6,367
  6,817
  7,293
  7,796
  8,327
  8,887
  9,477
  10,100
  10,756
  11,447
  12,174
  12,940
  13,745
  14,593
  15,485
Total liabilities, $m
  5,983
  6,121
  6,278
  6,455
  6,650
  6,865
  7,099
  7,352
  7,624
  7,917
  8,230
  8,564
  8,920
  9,298
  9,699
  10,124
  10,574
  11,050
  11,552
  12,083
  12,643
  13,234
  13,856
  14,512
  15,203
  15,931
  16,696
  17,502
  18,350
  19,241
Total equity, $m
  4,315
  4,414
  4,527
  4,655
  4,796
  4,951
  5,119
  5,302
  5,499
  5,710
  5,935
  6,176
  6,433
  6,705
  6,994
  7,301
  7,625
  7,969
  8,331
  8,714
  9,118
  9,544
  9,993
  10,466
  10,964
  11,489
  12,041
  12,622
  13,233
  13,876
Total liabilities and equity, $m
  10,298
  10,535
  10,805
  11,110
  11,446
  11,816
  12,218
  12,654
  13,123
  13,627
  14,165
  14,740
  15,353
  16,003
  16,693
  17,425
  18,199
  19,019
  19,883
  20,797
  21,761
  22,778
  23,849
  24,978
  26,167
  27,420
  28,737
  30,124
  31,583
  33,117
Debt-to-equity ratio
  0.520
  0.540
  0.560
  0.580
  0.600
  0.630
  0.650
  0.680
  0.700
  0.730
  0.750
  0.780
  0.800
  0.830
  0.850
  0.870
  0.890
  0.920
  0.940
  0.960
  0.970
  0.990
  1.010
  1.030
  1.040
  1.060
  1.070
  1.090
  1.100
  1.120
Adjusted equity ratio
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  799
  819
  842
  870
  901
  935
  973
  1,015
  1,061
  1,110
  1,331
  1,389
  1,450
  1,516
  1,586
  1,661
  1,741
  1,825
  1,915
  2,010
  2,111
  2,218
  2,331
  2,451
  2,577
  2,711
  2,851
  3,000
  3,157
  3,322
Depreciation, amort., depletion, $m
  571
  579
  588
  598
  609
  621
  635
  649
  665
  682
  470
  489
  509
  531
  554
  578
  604
  631
  660
  690
  722
  756
  791
  829
  868
  910
  954
  1,000
  1,048
  1,099
Funds from operations, $m
  1,370
  1,398
  1,430
  1,468
  1,510
  1,557
  1,608
  1,665
  1,726
  1,792
  1,801
  1,878
  1,960
  2,047
  2,140
  2,239
  2,345
  2,456
  2,575
  2,701
  2,834
  2,974
  3,123
  3,280
  3,446
  3,621
  3,805
  4,000
  4,205
  4,422
Change in working capital, $m
  17
  20
  23
  25
  28
  31
  34
  36
  39
  42
  45
  48
  51
  54
  58
  61
  65
  68
  72
  76
  80
  85
  89
  94
  99
  104
  110
  116
  122
  128
Cash from operations, $m
  1,353
  1,378
  1,408
  1,442
  1,482
  1,526
  1,575
  1,628
  1,687
  1,750
  1,756
  1,830
  1,909
  1,993
  2,083
  2,178
  2,280
  2,388
  2,503
  2,624
  2,753
  2,889
  3,033
  3,186
  3,346
  3,516
  3,695
  3,884
  4,083
  4,293
Maintenance CAPEX, $m
  -335
  -342
  -350
  -359
  -369
  -380
  -392
  -405
  -420
  -436
  -452
  -470
  -489
  -509
  -531
  -554
  -578
  -604
  -631
  -660
  -690
  -722
  -756
  -791
  -829
  -868
  -910
  -954
  -1,000
  -1,048
New CAPEX, $m
  -84
  -95
  -109
  -122
  -135
  -148
  -162
  -175
  -188
  -202
  -216
  -231
  -246
  -261
  -277
  -294
  -311
  -329
  -347
  -367
  -387
  -408
  -430
  -453
  -478
  -503
  -529
  -557
  -586
  -616
Cash from investing activities, $m
  -419
  -437
  -459
  -481
  -504
  -528
  -554
  -580
  -608
  -638
  -668
  -701
  -735
  -770
  -808
  -848
  -889
  -933
  -978
  -1,027
  -1,077
  -1,130
  -1,186
  -1,244
  -1,307
  -1,371
  -1,439
  -1,511
  -1,586
  -1,664
Free cash flow, $m
  933
  941
  949
  962
  978
  997
  1,021
  1,048
  1,078
  1,112
  1,088
  1,129
  1,174
  1,222
  1,274
  1,331
  1,391
  1,455
  1,524
  1,598
  1,676
  1,759
  1,847
  1,941
  2,040
  2,145
  2,256
  2,374
  2,498
  2,629
Issuance/(repayment) of debt, $m
  113
  138
  157
  177
  196
  215
  234
  253
  273
  293
  313
  334
  356
  378
  401
  425
  450
  476
  503
  531
  560
  591
  623
  656
  691
  727
  766
  806
  848
  892
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  113
  138
  157
  177
  196
  215
  234
  253
  273
  293
  313
  334
  356
  378
  401
  425
  450
  476
  503
  531
  560
  591
  623
  656
  691
  727
  766
  806
  848
  892
Total cash flow (excl. dividends), $m
  1,047
  1,079
  1,107
  1,138
  1,173
  1,212
  1,255
  1,301
  1,351
  1,405
  1,401
  1,463
  1,529
  1,600
  1,675
  1,756
  1,841
  1,931
  2,027
  2,128
  2,236
  2,350
  2,470
  2,597
  2,731
  2,872
  3,022
  3,179
  3,345
  3,521
Retained Cash Flow (-), $m
  -89
  -99
  -113
  -127
  -141
  -155
  -169
  -183
  -197
  -211
  -226
  -241
  -256
  -273
  -289
  -307
  -324
  -343
  -363
  -383
  -404
  -426
  -449
  -473
  -498
  -525
  -552
  -581
  -611
  -643
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  957
  979
  993
  1,011
  1,032
  1,057
  1,086
  1,118
  1,154
  1,194
  1,175
  1,222
  1,273
  1,327
  1,386
  1,449
  1,516
  1,588
  1,664
  1,746
  1,832
  1,924
  2,021
  2,124
  2,233
  2,348
  2,470
  2,598
  2,734
  2,878
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  918
  896
  864
  832
  800
  767
  734
  699
  663
  626
  558
  521
  484
  446
  407
  368
  330
  292
  256
  222
  189
  160
  132
  108
  87
  68
  53
  40
  30
  22
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

BorgWarner Inc. is engaged in providing technology solutions for combustion, hybrid and electric vehicles. The Company's segments include Engine and Drivetrain. The Engine segment's products include turbochargers, timing devices and chains, emissions systems and thermal systems. The Engine segment develops and manufactures products for gasoline and diesel engines, and alternative powertrains. The Drivetrain segment's products include transmission components and systems, all-wheel drive (AWD) torque transfer systems and rotating electrical devices. The Company's products are manufactured and sold across the world, primarily to original equipment manufacturers (OEMs) of light vehicles (passenger cars, sport-utility vehicles (SUVs), vans and light trucks). The Company's products are also sold to other OEMs of commercial vehicles (medium-duty trucks, heavy-duty trucks and buses) and off-highway vehicles (agricultural and construction machinery and marine applications.

FINANCIAL RATIOS  of  BorgWarner Inc. (BWA)

Valuation Ratios
P/E Ratio 73
Price to Sales 1
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow 16.2
Growth Rates
Sales Growth Rate 13.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -13.2%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 63.5%
Total Debt to Equity 69%
Interest Coverage 3
Management Effectiveness
Return On Assets 2.3%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8.9%
Return On Equity 3.5%
Return On Equity - 3 Yr. Avg. 12.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 21.3%
Gross Margin - 3 Yr. Avg. 21.2%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 13.4%
Operating Margin 2.5%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 2.1%
Pre-Tax Margin - 3 Yr. Avg. 8.5%
Net Profit Margin 1.3%
Net Profit Margin - 3 Yr. Avg. 5.6%
Effective Tax Rate 16.2%
Eff/ Tax Rate - 3 Yr. Avg. 25.4%
Payout Ratio 95%

BWA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BWA stock intrinsic value calculation we used $10530 million for the last fiscal year's total revenue generated by BorgWarner Inc.. The default revenue input number comes from 0001 income statement of BorgWarner Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BWA stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BWA is calculated based on our internal credit rating of BorgWarner Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of BorgWarner Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BWA stock the variable cost ratio is equal to 83.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $525 million in the base year in the intrinsic value calculation for BWA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for BorgWarner Inc..

Corporate tax rate of 27% is the nominal tax rate for BorgWarner Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BWA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BWA are equal to 38.5%.

Life of production assets of 12.1 years is the average useful life of capital assets used in BorgWarner Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BWA is equal to 8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4225.5 million for BorgWarner Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 207.617 million for BorgWarner Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of BorgWarner Inc. at the current share price and the inputted number of shares is $8.5 billion.

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