Lear Offers Plenty Of Growth Drivers

8/5/2013


  Recent Price
$69
  Dividend
$0.68
  Yield
1.0%
  P/E Ratio
12
  Shares (millions)
86
  Long-Term Debt as % of Capital
23%
  52-Week Price Range
$68.86 - $35.45

Continued production increases for the auto industry should drive growth at Lear ($69; LEA), which sells seats and electrical power management systems to just about every carmaker on the planet.

According to the International Organization of Motor Vehicle Manufacturers, global vehicle production topped 84 million last year, a record high, up 5% from 2011 and 36% from 2009. Gains in the Americas and Asia offset a decline in Europe, a trend OICA expects again this year, with world production projected to rise 3%.

Analyst estimates call for Lear's profits to fall 2% this year, hurt by weaker production in Europe and a changeover of General Motors' ($37; GM) light trucks in North America. New products tend to lower margins until volumes ramp up, and the relaunch of GM vehicles accounting for about 10% of Lear's sales should conclude in the middle of 2014. The consensus projects a profit jump of 25% next year. Lear topped consensus estimates by at least 18% in the last two quarters, and profit targets are on the rise. Lear, initiated as a Long-Term Buy in the July 29 issue, is joining the Focus and Buy lists today.

Building momentum

In the June quarter, Lear earned $1.62 per share, up 20% and 18% above the consensus. Revenue rose 12%, also topping expectations, with content per vehicle roughly flat at $367 in North America and up 11% to $306 in Europe and Africa. Vehicle production remains below historical norms in Europe, but the 2% quarterly gain was the first since the fourth quarter of 2011. Lear's $1.8 billion backlog of new products should help support growth through 2015.

At the seating segment (74% of sales in the six months ended June, 64% of profits), sales rose 10% for the quarter while earnings declined 4%. New-product launches and capacity-expansion costs crimped margins, which fell to 5.7% from 6.7% in the June 2012 quarter.

The electrical power management unit (26% of sales, 36% of profits) delivered growth of 20% in sales and 72% in profits for the quarter. This segment fattened its profit margin to 9.2% from 6.6% a year earlier.

Investors get cash back

Lear raised its quarterly dividend 21% in February, and in the first six months of this year the company repurchased $1 billion of its own shares. Lear has lowered its share count by 15% over the last year and 45% over the last five years, and the aggressive buybacks should continue. The company hinted it might purchase additional shares by the end of March 2014 through an accelerated share repurchase (ASR) program that started in the June quarter. Beyond the ASR, Lear has $750 million remaining under its share-buyback authorization, enough to retire 13% of outstanding shares at current prices.

Lear trades at 12 times trailing earnings, 34% below the median auto parts & equipment maker in the S&P 1500 Index. The stock looks similarly cheap based on other valuation metrics, such as price/sales (63% discount) and price/book (23%).

An annual report for Lear Corp. is available 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
Jun '13
1.62
vs.
1.35
12%
61.51
-
50.73
11 - 9
Mar '13
1.30
vs.
1.38
8%
56.70
-
46.65
10 - 8
Dec '12
1.48
vs.
1.26
6%
46.90
-
37.99
9 - 7
Sep '12
1.29
vs.
1.08
2%
42.08
-
34.81
8 - 7
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2012
14.57
5.49
0.56
48.25
-
34.81
9 - 6
2011
14.16
5.34
0.50
57.03
-
35.60
11 - 7
2010
11.95
4.42
0.00
50.51
-
29.00
11 - 7
2009
9.74
NM
0.00
35.25
-
NM
NM
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
99
96
83
88
39
96
89

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful because Lear emerged from bankruptcy in late 2009.


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