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BorgWarner (BWA) to Report Q4 Earnings: What's in Store?

Zacks Equity Research

BorgWarner Inc. BWA is set to release fourth-quarter and 2018 earnings on Feb 14, before the market opens. In the last reported quarter, the company delivered a positive earnings surprise of 1%. It surpassed estimates in all of the trailing four quarters, the average beat being 5%.

In the past three months, shares of BorgWarner have underperformed the industry it belongs to. The stock has gained 1% compared with the industry’s increase of 2.9% during the period.

Let’s see how things are shaping up for the upcoming announcement.

BorgWarner Inc. Price and EPS Surprise

 

BorgWarner Inc. Price and EPS Surprise | BorgWarner Inc. Quote

Factors Influencing This Quarter

In the fourth quarter of 2018, BorgWarner is positioned to grow from an array of products in the portfolio. Product offerings like hybrid and electric technologies are anticipated to aid the company maintain its streak of winning business, thus, supporting long-term growth.

The company is making several collaborations to develop products for combustion, hybrid and electric vehicles. In the last year, it announced the plan to launch a hub in China that will meet the increasing demand for EVs and hybrid electric vehicles in the country.

However, challenging industry volume in key markets across the globe might lower BorgWarner’s financials in the soon-to-be-released quarter. For 2018, it expects global light-vehicle production to witness a declining trend due to slowing demand. Productions in China and Europe are projected to be flat to down 1%, owing to softening demand in China and short-term WLTP-related issues in Europe. Further, vehicle production for North America is expected to remain flat compared with the prior year.

Moreover, increasing R&D expenses to launch products, and rising raw material and tariff-related costs and inflation are anticipated to dent the company’s profit margin. For fourth-quarter 2018, it expects an increase of roughly $10 million in tariff and inflation headwinds.

Earnings Whispers

Our proven model does not conclusively show that BorgWarner is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Earnings ESP: BorgWarner has an Earnings ESP of -2.24% as the Zacks Consensus Estimate and the Most Accurate Estimate are currently pegged at $1.05 and $1.07, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: BorgWarner currently carries a Zacks Rank #3.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few stocks from the same space, with the right combination of elements to outpace earnings estimates this time around:

Wabco Holdings Inc. WBC has an Earnings ESP of +0.22% and it currently carries a Zacks Rank #3. Its results for fourth-quarter 2018 are scheduled to release on Feb 15.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Garrett Motion Inc. GTX has an Earnings ESP of +12.96% and it is a #1 Ranked player. Its fourth-quarter 2018 results are slated to release on Feb 20.

Allison Transmission Holdings, Inc. ALSN has an Earnings ESP of +4.90% and it currently carries a Zacks Rank #3. Its fourth-quarter 2018 results are scheduled to release on Feb 26.

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