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Stock Spotlight

Lear can steer out of its skid

Recent Price
$116
Dividend
$1.20
Yield
1.0%
P/E Ratio
11
Shares (millions)
77
Long-Term Debt as % of Capital
39%
52-Week Price Range
$127.00 - $89.71



Shares of Lear ($116; LEA) raced ahead of peers in 2015, delivering a total return of 26%, while the average S&P 1500 auto-supplies stock held flat. But Lear's stock has been stuck in reverse this year, losing 11%, versus the industry average of a 3% gain.

Auto-parts stocks struggled in the first few months of 2016, shaken by concerns that U.S. auto sales may have peaked in 2015 and that troubles brewing in China could further depress the auto market. Fanning those fears, the annualized rate for U.S. car sales fell to 16.6 million vehicles in March, the lowest level in 13 months.

At the same time, employment trends remain favorable and consumer confidence healthy. Interest rates and fuel prices hold near historically low levels, while the average age of cars on U.S. roads keeps creeping higher. Finally, Lear's market-share gains should help insulate the company from the prospect of softer auto sales. On average, Lear supplied $443 worth of components for each North American vehicle last year, up 11% from 2014.

Although some caution may be warranted in the auto-parts space, Lear shares appear priced for a disaster unlikely to materialize. Earning a Quadrix Value score of 95, the stock is a Focus List Buy and a Long-Term Buy.

Wired for a rebound

Lear stakes its claim as the world's second-largest supplier of automotive-seating systems (77% of its 2015 revenue, 62% of segment earnings), controlling nearly a quarter of the $60 billion market. It also has a 6% slice of the automotive-electrical market, which represents 23% of sales.

Lear grew seating sales 6% last year, partly due to its $850 million acquisition of leather supplier Eagle Ottawa in January 2015, while its more profitable electrical unit posted a 7% decline. Lear benefited from rising production volumes, though the stronger U.S. dollar weighed on sales.

With about three-fourths of sales coming from outside the U.S., Lear is highly susceptible to currency fluctuations. Total revenue would have risen 11% at constant currency last year, compared to its reported 3% growth. Still, profit margins rose at both units for the second straight year, and management seems confident margins can keep climbing in 2016.

Encouragingly, analyst estimates for 2016 have drifted higher in the past 90 days, pushing the consensus profit estimate to $12.01 per share, implying an 11% gain. That growth compares favorably to the S&P 1500 auto-parts industry median of 10%. Yet Lear trades at just nine times estimated year-ahead earnings, well below its industry median of 16.

At 10 times trailing earnings, the stock lingers below its five-year average of 11. If Lear's trailing P/E returns to its historical norm of 11 and management meets only the lowest 2016 estimate of $11.20, the stock would rally 13% by early next year.

Slated to post March-quarter results on April 27, Lear is expected to report earnings per share of $2.76, up 21% on 4% higher revenue. Lear has topped the profit consensus by more than $0.05 per share in 15 of the past 17 quarters.

An annual report for Lear Corp. can be obtained at 21557 Telegraph Road, Southfield, MI 48033; (248) 447-1500; www.lear.com.


 

Lear

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Dec '15
$3.20
vs.
$2.27
4%
$127.00
-
$106.54
13 - 11
Sep '15
2.56
vs.
1.93
2%
113.65
-
89.71
12 - 10
Jun '15
2.82
vs.
2.12
1%
118.50
-
107.80
14 - 13
Mar '15
2.28
vs.
1.84
4%
112.67
-
92.45
14 - 11

 
Year (Dec.)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2015
$18.21
$10.85
$1.00
$127.00
-
$89.71
12 - 8
2014
17.73
8.15
0.80
103.74
-
71.57
13 - 9
2013
16.23
5.90
0.68
83.72
-
46.65
14 - 8
2012
14.57
5.49
0.56
48.25
-
34.81
9 - 6

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
98
79
95
92
40
94
32

* Earnings exclude special items.
NM Not Meaningful.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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Stock Spotlight

Lear can steer out of its skid

Wednesday, April 27, 2016

Shares of Lear ($116; LEA) raced ahead of peers in 2015, delivering a total return of 26%, while the average S&P 1500 auto-supplies stock held...

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