What Will Be The Jump In Lear’s Valuation If Seating Margin Expands By More Than Expected?

+34.89%
Upside
96.38
Market
130
Trefis
LEA: Lear logo
LEA
Lear

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.

See our full analysis for Lear Corporation

Inclusion of new businesses and premium positioning in seating has helped improve company margin so far this year.

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Lear Q&A 15

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.

Lear Q&A 14

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Lear Corporation

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