Key Highlights

  • BorgWarner shares climbed on October 6 after Morgan Stanley upgraded the stock to Overweight from Equal Weight.
  • The bank pointed to what it described as a durable automotive Earnings base for the company.
  • BorgWarner makes turbochargers, drivetrain parts and systems for hybrid and electric vehicles.
  • The upgrade was one of several analyst rating changes that day, including moves on Corteva, Cleveland-Cliffs and Procter & Gamble.

BorgWarner (NYSE:BWA) climbed on Tuesday, October 6, after Morgan Stanley upgraded the auto-parts supplier to Overweight from Equal Weight. The bank pointed to what it described as a durable automotive earnings base, suggesting it sees BorgWarner's core Business as more resilient than the market had been giving it Credit for.

An upgrade to Overweight indicates that analysts expect a stock to outperform the average stock in their coverage universe over time. The move from Equal Weight, a neutral stance, represents a meaningful shift in Morgan Stanley's view.

What BorgWarner Does

BorgWarner makes components for vehicles, including turbochargers, drivetrain parts, and systems for hybrid and electric vehicles such as battery and power-electronics products. The company sells to automakers around the world, which means its fortunes depend on global vehicle production, consumer Demand for cars and trucks, and the pace at which the industry shifts toward electrification.

The idea of a durable earnings base matters in the auto-supply industry, which is known for its cyclicality. When vehicle sales slow, suppliers often see profits squeezed. A view that BorgWarner's earnings can hold up through changing conditions, including an uncertain transition to electric vehicles, is the kind of argument that can persuade investors to take a fresh look at the stock.

Part of a Busy Day for Ratings

BorgWarner was one of several companies lifted by analyst upgrades on Tuesday. JPMorgan upgraded Corteva (NYSE:CTVA) to Overweight following its seed spinout, sending that stock sharply higher. Wells Fargo (NYSE:WFC) upgraded Cleveland-Cliffs (NYSE:CLF), citing steel pricing power, and Evercore ISI upgraded Procter & Gamble (NYSE:PG). Not every rating change in the auto sector was positive: Goldman Sachs (NYSE:GS) downgraded auto-parts maker Gentex (NASDAQ:GNTX) to Sell.

A Record-Setting Market

The broader market provided a supportive backdrop. The S&P 500 rose 44.98 points to a record close of 7,818.93, and the Nasdaq Composite also finished at a record just under 27,600. The Dow Jones Industrial Average added 253.38 points to 51,521.28. Small caps lagged, with the Russell 2000 slipping. Consumer discretionary, the sector that includes automakers and parts suppliers, was among the strongest groups of the day.

Treasury yields eased after a sharp run-up, with the 10-year settling at about 5.28. That is relevant for auto-related companies, because higher borrowing costs make car loans more expensive and can weigh on vehicle demand.

Trade data released Tuesday added context for global suppliers. The US Trade Deficit widened to $105.6 billion in August, wider than economists expected, as imports hit a record. Tariffs remain a live issue for automakers and their suppliers, which rely on cross-border Supply chains.

Earnings Will Put the Thesis to the Test

BorgWarner's third-quarter earnings report will be the next test of Morgan Stanley's thesis, with investors watching margins, orders and commentary on electric-vehicle demand. Other analysts may revisit their ratings after the upgrade.