Citi starts Lear stock with a Buy rating, $123 price target

On Wednesday, Citi analysts initiated coverage on Lear (NYSE:LEA) Corporation shares, a leading global supplier of automotive seating systems, with a Buy rating and a price target set at $123.00. The new coverage comes with a positive outlook on the company’s financial performance, citing Lear’s impressive cash flow generation and potential for high returns to shareholders. Currently trading at an attractive P/E ratio of 8.9x and offering a 3.81% dividend yield, InvestingPro analysis suggests the stock is currently undervalued relative to its Fair Value.

Over the past three years, Lear has generated $3.4 billion in operating cash flow, which accounts for approximately 80% of its current market capitalization. Citi expects the company to maintain similar cash flow levels through 2025-26, despite potential challenges such as tariffs impacting the market. The analysts foresee Lear continuing to deliver double-digit cash returns to its shareholders during this period through dividends and share repurchases. InvestingPro data reveals the company has maintained dividend payments for 15 consecutive years, with management actively buying back shares to enhance shareholder returns.

Lear’s seating segment, recognized as a global leader, has been highlighted as a significant contributor to the company’s financial strength. This segment is one of the least capital-intensive in the automotive supply chain, with most facilities located near assembly plants, leading to higher inventory turnover and robust cash generation, especially in a context of increasing production. Additionally, seating systems are compatible with all powertrain types, which further strengthens Lear’s market position.

The firm also notes Lear’s solid balance sheet, with more than 60% of its debt maturing after 2030 and 38% after 2049. This financial stability is seen as a key factor enabling Lear to return excess cash to shareholders. Despite the uncertainty surrounding tariffs, which has broadly affected valuation levels in the auto sector, Citi points out that most of Lear’s components are currently unaffected based on the existing tariff language.

The valuation discount of over 30% from historical metrics, based on Citi’s below-consensus estimates (7% below), further supports the positive outlook for Lear’s stock. The $123 price target is grounded on the lower end of the analysts’ targeted multiple range, reflecting a conservative yet optimistic view of Lear’s future performance. InvestingPro analysis shows the company maintains a strong financial health score, with robust profitability metrics and solid cash flow generation. For deeper insights into Lear’s valuation and growth potential, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

In other recent news, Lear Corporation reported a Q4 adjusted earnings per share (EPS) of $2.94, surpassing the consensus estimate of $2.58. The company’s quarterly revenue decreased slightly by 1.7% to $5.71 billion, which was still $180 million above consensus expectations. CFRA analyst Garrett Nelson upgraded Lear’s stock rating from Hold to Buy, raising the price target to $120 from $110, based on a revised 12-month target and a forward price-to-earnings ratio. Lear Corporation also announced the acquisition of StoneShield Engineering, a system integrator specializing in automation for the wire harness industry, to bolster its E-Systems business. In another development, Lear introduced the ComfortMax Seat in collaboration with General Motors (NYSE:GM), enhancing thermal comfort in select GM vehicles starting in the second quarter of 2025. Additionally, Amanda J. Pontes was promoted to General Counsel, effective March 1, 2025, as part of Lear’s ongoing efforts to strengthen its leadership team. These recent developments reflect Lear’s strategic focus on innovation, operational excellence, and leadership enhancement.

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