Does Lear Stock Have An Upside At $164?

At the current price near $164 per share, we believe Lear Corporation’s stock (NYSE: LEA) is close to its near term potential. LEA stock has risen 19% since the end of 2019 compared to the S&P 500 which has increased by 18% in the same period. Lear saw revenue fall by 16% for the year 2020 as there was a high impact of the coronavirus pandemic on the auto sector. It resulted in earnings per share falling to $2.63 compared to $12.80 in the previous year.  The company has seen revenue fall over the recent years, while its P/S multiple has risen. We believe the stock is close to its near term potential. Our dashboard ‘Buy or Sell Lear’s Stock?‘ provides the key numbers behind our thinking.

Lear’s revenue fell from $21.1 billion in 2018 to $17 billion in 2020 due to the pandemic. Net Income fell from $1.15 billion in 2018 to $0.16 billion in 2020. Revenue per share decreased from $319.64 in 2018 to $282.08 in 2020.

During the same period, the P/S multiple increased from 0.38x to 0.56x. The P/S multiple improved in 2020 and is currently at 0.60x.

Where Is The Stock Headed?

The global spread of coronavirus led to lockdown in various cities across the globe, which affected industrial and economic activity. This adversely affected consumption and consumer spending. Lear’s revenues and earnings fell in the first half of 2020 before recovering in the second half.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.

While Lear’s stock may have moved, 2020 has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Aptiv PLC vs. Lockheed Martin shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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