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On Thursday, CFRA analyst Garrett Nelson upgraded shares of Lear Corporation (NYSE:LEA) from Hold to Buy, adjusting the price target upward to $120 from the previous $110. Nelson cited a revised 12-month target based on a forward price-to-earnings (P/E) ratio of 8.0x, which reflects a discount to Lear’s average 10-year mean forward P/E of 12.7x. Currently trading at a P/E of 10x, InvestingPro analysis suggests Lear is undervalued, with 8 analysts recently revising their earnings estimates upward. The upgrade follows Lear’s recent financial performance, where the company reported a Q4 adjusted earnings per share (EPS) of $2.94, surpassing the consensus estimate of $2.58.
Lear’s quarterly revenue decreased slightly by 1.7% to $5.71 billion, which was $180 million above consensus, but the core operating margin shrank by 40 basis points to 4.5%. Despite this, the company’s sales figures were stronger than anticipated. In light of these results, CFRA has revised its adjusted EPS estimate for 2025 to $13.10 from $14.60 and introduced an estimate for 2026 at $15.00.
The automotive supplier has also provided guidance for 2025, projecting net sales between $21.88 billion and $22.88 billion and adjusted EBITDA in the range of $1.54 billion to $1.80 billion. These figures are somewhat below the current consensus forecasts, which anticipate $22.91 billion in net sales and $1.72 billion in adjusted EBITDA.
Despite near-term challenges facing auto suppliers, CFRA expects Lear to generate substantial free cash flow in 2025, estimated at approximately $530 million, up from $489 million in 2024. A portion of this cash flow is anticipated to be allocated towards stock repurchases. The analyst highlighted that with Lear’s $1.1 billion buyback authorization, the company could repurchase up to 22% of its market capitalization at current market prices. InvestingPro data reveals management’s aggressive share buyback strategy and highlights Lear’s impressive 14-year streak of consistent dividend payments, currently yielding 3.3%. For deeper insights into Lear’s financial health and valuation metrics, investors can access the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Lear Corporation announced significant developments in its operations and product offerings. The company has integrated its advanced ComfortMax Seat technology into select General Motors (NYSE:GM) vehicles, set to launch in 2025. This innovative seating solution offers enhanced thermal management, potentially improving the driving experience and simplifying assembly processes.
Additionally, Lear has expanded its automation capabilities through the acquisition of StoneShield Engineering, a specialist in automation for the wire harness industry. This strategic acquisition aligns with Lear’s IDEA strategy, aimed at achieving operational excellence through innovation and technology.
In a recent analyst note, TD Cowen revised its price target for Lear Corporation to $115, while maintaining a Buy rating. This adjustment follows Lear’s reaffirmation of its fourth-quarter 2024 revenue guidance, projected to be just under $5.5 billion. The company’s strategic initiatives throughout 2024 and into 2025 are expected to yield cumulative run rate savings of $150 million. These recent developments reflect Lear’s commitment to innovation, customer satisfaction, and operational efficiency in the automotive industry.
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