Prices Hold Back Borg Warner
An update with a major cut in the price target has come out on Borg Warner, Inc. (BWA), in which senior auto industry analyst Paul Raman, CFA maintains his cautious approach and reaffirms the Hold rating on the company. We excerpted the following details:
'Borg Warner is expected to benefit from the growing demand for its strong technology-based product portfolio. About $1.95 billion of new powertrain business is expected between 2008 and 2010. Also, BWA has healthy financials with low debt and has further taken initiatives to maintain margins in the challenging North American industry environment.
'Changes in auto demand can affect Borg Warner significantly. About 75% of BWA's sales are to OEMs. Rising short-term interest rates have reduced automotive demand as higher rates make cars more difficult to purchase. Automotive financing is pegged to the short-term LIBOR rate. This, in turn, affects demand for Borg Warner's products. There is continued price pressure from OEMs to reduce costs. The suppliers must offer price concessions to win new jobs and maintain contracts.
'Currently, the shares of BWA are trading at 17.0x our 2008 EPS estimate of $2.85. We are rating BWA's stock a Hold, as the impressive slew of new product launches is burdened with high raw material prices. Our cautious approach is reflected in our six-month target price of $50, which is derived by using our 2008 EPS estimate, and a forward multiple of 17.5x.'
Still Bullish on VIP
Reiterating his bullish case for Vimpel-Communications (VIP), Zacks senior telecom industry analyst David Weissman, CFA explains why the future looks bright for the wireless telecom service provider:
'VimpelCom is a leading wireless telecom service provider in Eastern Europe. The company maintains its strong market position in the Moscow metropolitan area (which is rapidly maturing) along with expansion into regions outside the capital and within the Commonwealth of Independent States surrounding Russia. Robust subscriber growth and recent acquisitions continue to drive revenue and earnings higher.
'Growth prospects in Eastern Europe for wireless services remain firm and support our forecast for strengthening financials. We continue to be intrigued by VimpelCom's success in capturing market share, which is expected to lead to increased sales on a recurring basis. VimpelCom is trading at 30.5x our 2007 EPADS estimates. This is at a premium to its major competitor, Mobile TeleSystems (MBT) (its closest Russian peer) and the S&P 500.
'Meanwhile, VimpelCom continues to demonstrate its ability to succeed in emerging markets bolstered by sustained subscriber growth which in turn continues to drive revenue and earnings higher.
