Everybody wants to be a part of the change that vehicle electrification is bringing to the automotive market.
Tuesday, drivetrain equipment supplier
(ticker: BWA) announced plans to spin off its fuel systems and aftermarket business, choosing to focus more on vehicle electrification technologies.
“The intended separation supports optimizing our combustion portfolio and advancing our electrification journey while [the spin off company] would be able to pursue growth opportunities in alternative fuels, such as hydrogen,” said Alexis Michas, the nonexecutive chairman of the
board of directors, in a news release. “Ultimately, we expect the intended separation to maximize shareholder value by having two focused and strong companies, each pursuing their respective strategies.”
Borg has had growing EV ambitions for a while. Its “charging forward” strategy calls for 25% of sales to come from battery-electric vehicles by 2025 and 45% by 2030.
The company said in November it is on pace to generate about $4 billion in EV sales in 2025. Even without a spinoff, that level would put Borg close to its goal, given that the company is on pace to deliver about $15.6 billion in sales in 2022. Roughly 20% of sales will come from the fuel systems and aftermarket businesses that are being spun out.
Borg stock isn’t getting a bump from the news. Shares were down about 2.4% in midday trading Tuesday, while the
Dow Jones Industrial Average
were off 1.5% and 1.1%, respectively.
Investors may be inured to spin announcements. “BWA joins a long list of companies that have either spun off an auto parts business or split an auto parts business into two pieces,” wrote Gordon Haskett special situations analyst Don Bilson in a Tuesday note. He cited
(ALV) which spun off autonomous driving company Veoneer in 2018, and
(MRO.London), which announced its plans to spin off drivetrain component maker GKN in September.
Investors don’t like so-called deal limbo either. That’s the directionless state a stock can slip into while investors who might like a company wait for corporate transactions to finish. The spin is slated to finish by late 2023, according to the company.
Investors could also have been ready for the spin. “Not a surprise overall,” wrote Baird analyst Luke Junk in a Tuesday report, adding that management has talked about divestitures in the recent past.
The spin doesn’t change his outlook for BorgWarner stock. Junk rates shares Buy and has a target of $49 for the stock. Shares are at $40.84 in Tuesday trading.
Overall, 50% of the analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 58%. The average price target is about $47 a share.
Including Tuesday’s move, Borg stock is down about 9% year to date.
Write to Al Root at email@example.com