What Will Be The Jump In Lear’s Valuation If Seating Margin Expands By More Than Expected?
Lear Corporation‘s (NYSE:LEA) stock is slightly down from the highs of the end of last year, but there is a lot of potential growth the company could tap, especially in terms of profitability. The company’s low-cost manufacturing footprint and increased operational efficiencies have helped in pushing up the margins. Lear, just like other companies in the auto sector, has looked to make the most of its operations in low-cost emerging countries, where vehicle demand is growing due to steadily increasing disposable incomes and low current penetration levels. Lear has looked to leverage the low costs of manufacturing in these countries to boost profitability. More than 100 of Lear’s manufacturing engineering facilities, out of a cumulative 240 facilities, are located in low-cost countries.
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Inclusion of new businesses and premium positioning in seating has helped improve company margin so far this year.
The inclusion of Eagle Ottawa, a supplier of premium automotive leather, helped boost seating’s EBITDA margin to 7.2% last year from 5.4% in 2014. Lear’s commitment to expanding its low-cost footprint, and increasing operational efficiencies, could see margin for seating increase beyond our current estimate. Trefis estimates Lear’s seating adjusted EBITDA margin to increase from 7.2% in 2015 to 8.3% in 2021. However, if the figure increases to 9.5% by the end of the forecast period, there could be a 10% upside to our current valuation of $122 per share, which is already 4% above the current market price.
Have more questions on Lear Corporation? See the links below.
- Growing Content In China Could Add To Lear’s Growth This Year
- Lear Earnings Review: Profit Rises On Solid Performance Across Seating And Electrical Segments
- What’s Lear Corporation’s Fundamental Value Based On Expected 2015 Results?
- Where Will Lear’s Revenue And EBITDA Growth Come From Over The Next Three Years?
- What Is Lear Corporation’s Revenue And EBITDA Breakdown?
- Lear Corporation: Year In Review
- By What Percentage Have Lear’s Revenues And EBITDA Grown Over The Last Five Years?
- How Has Lear Corporation’s Revenue And EBITDA Composition Changed Over 2011-2015?
- What Is Lear Corporation’s Geographical And Client-Wise Revenue Breakdown?
- Why Lear’s Stock Has Appreciated 90% In The Last Five Years
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