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BorgWarner Inc. (BWA), TRW Automotive Holdings Corp. (TRW): Five Auto Parts Manufacturers Tuning Up Earnings

This year’s cyclical automotive upturn will likely stick around, supporting the profitability of complementary industries like parts suppliers in the process. BorgWarner Inc. (NYSE:BWA)Parts makers’ earnings are mostly on pace to soar thanks to increased vehicle production and demand, and investors have accordingly boosted these companies’ shares. But I believe there is still opportunity to gain from the positive momentum in this industry — particularly in the case of these five stocks.

Improved outlook

BorgWarner Inc. (NYSE:BWA) operates through two segments. Its engine unit contributed 68% of June-quarter revenues, with its drivetrain division making up the rest. Its products in both divisions are mostly geared toward boosting engines’ fuel efficiency and performance.

The company’s management recently upped its 2013 share-net guidance to a range of $5.40 to $5.55, previously $5.15 to $5.45. This compares with last year’s $4.97 result. It credits automakers’ heightened focus on meeting tighter emissions standards for its better-than-expected performance.

In fact, last quarter represented a return to sales growth for both of BorgWarner Inc. (NYSE:BWA)’s major operating segments. My belief is that the growth trend will persist through at least the next couple of quarters, partly thanks to the annualization of the earlier sale of its spark plug business that had formerly contributed about $80 million a year in sales. It sold that operation to Federal-Mogul during the second quarter of 2012. On that note, the sale already seems to be boosting BorgWarner Inc. (NYSE:BWA)’s operating margin.

BorgWarner Inc. (NYSE:BWA) shares are a sound investment at their current forward P/E multiple of 15.4. They may entice those looking longer term, given the liquid balance sheet. As its long-term strategy, BorgWarner Inc. (NYSE:BWA) is focused on “new product development and strategic capital investments to enhance its product leadership strategy.” At this time, cash is being used largely for capital spending and share buybacks.

Chassis supplier motoring ahead

TRW Automotive Holdings Corp. (NYSE:TRW)’ products consist of those related to brakes and steering systems. Additionally, in another division, it makes airbags, seatbelts and steering wheels. The Electronics division produces items related to safety, chassis, radio frequency, powertrain (energy producing) and driver assist functions. Finally, its Automotive Components unit makes body controls and engine valves, along with engineered fasteners and components.

TRW Automotive Holdings Corp. (NYSE:TRW) achieved a 16% share-earnings jump, on 6% revenue growth, in the recent June quarter. In addition to higher vehicle production, greater demand for safety products ignited sales growth.

The company stands out for its better-than-industry-average historical EPS growth (see ratios). It is also notable for its low long-term debt-to-equity ratio of 0.36 compared with the industry average of 0.72. TRW Automotive Holdings Corp. (NYSE:TRW) will likely continue to repurchase shares, supporting share net gains, given that it entered into an accelerated share repurchase agreement in May 2013, as stated in the latest 10-Q filing It is also spending to expand manufacturing capacity, particularly in Asia.

In all, TRW Automotive Holdings Corp. (NYSE:TRW) shares are an above-average selection for long-term price gains.

Rapid Sales Growth

Lear Corporation (NYSE:LEA) is notable for its sales comparisons, as that measure climbed at a 12% clip in the quarter. Although costs related to transitions to new Seating programs restrained earnings in that period, earnings are likely to be back on track within the next several quarters.

To illustrate the importance of this Seating program, here’s a breakdown of the company’s segments:

1. Seating contributed 75% of total June-quarter revenues. The company produces complete automotive seating assemblies.

2. Electrical Power Management Systems was attributable for 25% of revenues. It manufactures electrical distribution systems and components.

Sales increases in the electrical business have been impressive, at 20% in the June quarter, a reflection of newly minted agreements, as well as rising production on existing contracts. It seems the company is well-positioned for a return to strong share-profit gains, supported in part by an aggressive buyback program.

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