BorgWarner received an analyst upgrade Thursday, after spinning off Phinia as a separate company Wednesday to focus on the market for electric vehicles. BorgWarner stock rallied.
Phinia stock soared in its stock market debut Wednesday but tumbled Thursday.
'The Tide Is Turning' For Auto Suppliers
In a note to clients Thursday, analysts at Bank of America upgraded BorgWarner to buy from neutral. Among other auto equipment suppliers, they also upgraded Aptiv and Magna to buy from neutral. They upgraded Gentex to neutral from underperform.
The BofA analysts cited improved industry dynamics and favorable cycle timing. "Increasing production and lower costs should also drive improved results," they said.
The analysts highlighted recovering auto industry volumes, with 2023 so far exceeding expectations, particularly in the U.S. amid robust fleet sales. New vehicle sales for the second quarter came in stronger than expected this week.
"Since 2020, the industry, but specifically suppliers, have been starved for volumes," BofA analyst John Murphy and his team wrote in the note. "But the tide is turning."
The analysts hiked their price target on BWA stock to $67, from $54. The new price target is 55% above where BorgWarner stock closed on Wednesday. They raised their PT on Aptiv stock to $140, up from $130, and on Magna stock to $85, up from $65. They upped their price target on Gentex stock to $33, from $26.
They called BorgWarner well-positioned with its next-generation powertrain products for "the transition to an electrical future."
By comparison, the analysts made small revisions to price targets for auto dealers.
Separately, BofA analysts hiked their price target on Tesla to $300 from $225 with a neutral rating on shares of the EV giant. They cited the "roll-forward" of valuations to 2024.
BorgWarner Going Electric
Two years ago, BorgWarner, a Tier 1 auto components supplier, said it would shift to electrification technology. The company has steadily increased its focus on the rising market for electric vehicles (EVs), supplying battery systems, chargers, drive systems, motors and other components to major auto manufacturers worldwide.
Automakers globally are making a costly and bold shift to EVs. But the transition has been bumpier than expected while recession risk lingers.
Meanwhile, demand is on the rise for technologies that improve traditional internal combustion engine (ICE) vehicles in terms of tailpipe emissions and energy efficiency.
Phinia makes fuel systems, electrical systems and aftermarket parts. Its products help to "keep combustion engines operating at peak performance, as cleanly and efficiently as possible," it says.
BorgWarner Stock Rallies, Phinia Stock Dives
Shares of Phinia plunged 8% Thursday. Phinia stock rocketed 22% to 36.56 in its debut Wednesday.
BWA stock popped almost 4% Thursday, after dipping 1.7% to 43.18 in Wednesday's stock market action.
Shares of Aptiv, Magna and Gentex all gained Thursday. Tesla stock slid 2.1%.
BorgWarner stock offers a 44.99 consolidation buy point, according to the IBD MarketSmith chart. Shares rallied strongly over the prior six sessions, starting below their 50-day line.
EV Shift, Combustion Engines
Borg Warner is a long-standing supplier of chief drivetrain components to leading auto manufacturers.
Traditionally tight-lipped about its customers, for 2022, the company listed 13% of its net sales were to Ford, another 8% to Volkswagen. Borg Warner's top ten customers accounted for 62% of sales.
Two years ago, BorgWarner announced a strategy to accelerate on electrification. That strategy included disposing of $3 billion to $4 billion in revenue tied to combustion engines by 2025. The Phinia spinoff was part of that effort, along with the sale of a controls business in 2022.
By 2027, Borg Warner is targeting more than $10 billion in revenue from electrification products.
