BorgWarner: We Maintain Our $81 Fair Value Estimate as Investor Day Reveals Post-Spinoff Details

We maintained our $81 fair value estimate on narrow-moat-rated BorgWarner after management provided additional details post-spinoff of Phinia (fuel systems and aftermarket businesses) at its investor day. We think the market was disappointed by margin targets standalone BorgWarner set, but we had already baked this into our model. While we still need to do more work separating Phinia and BorgWarner’s financials, we believe our BorgWarner standalone fair value estimate may be between $45 and $55 while the Phinia spinoff portion could be in the neighborhood of $25 to $35. Still, the 5-star-rated shares of pre-spinoff BorgWarner on June 6 trade at a compelling 42% discount to our $81 fair value.