We Think BorgWarner's (NYSE:BWA) Healthy Earnings Might Be Conservative

BorgWarner Inc. (NYSE:BWA) announced a healthy earnings result recently, and the market rewarded it with a strong uplift in the stock price. This reaction by the market reaction is understandable when looking at headline profits and we have found some further encouraging factors.

View our latest analysis for BorgWarner

How Do Unusual Items Influence Profit?

For anyone who wants to understand BorgWarner's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$246m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And, after all, that's exactly what the accounting terminology implies. Assuming those unusual expenses don't come up again, we'd therefore expect BorgWarner to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On BorgWarner's Profit Performance

Unusual items (expenses) detracted from BorgWarner's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that BorgWarner's statutory profit actually understates its earnings potential! And on top of that, its earnings per share have grown at 48% per year over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into BorgWarner, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for BorgWarner you should be aware of.

This note has only looked at a single factor that sheds light on the nature of BorgWarner's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.