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On Wednesday, TD Cowen adjusted its price target for Lear Corporation (NYSE: NYSE:LEA), a leading global supplier of automotive seating and electrical systems, reducing it from the previous $125.00 to $115.00, while still endorsing the stock with a Buy rating. Currently trading near its 52-week low at $95.01, InvestingPro analysis suggests the stock is undervalued, with a P/E ratio of 10.03x. The adjustment follows Lear's reaffirmation of its fourth-quarter 2024 revenue guidance, which is projected to be just under $5.5 billion. The company's production is expected to align with forecasts despite minor disruptions stemming from inventory management issues in North America and Europe.
Lear's management has indicated that segment margins for the fourth quarter of 2024 should meet expectations, with 6% for Seating and 5% for E-Systems. With current gross profit margins at 7.69% and an EBITDA of $1.66 billion, the focus remains on cutting labor costs, which currently account for 13% of sales, by increasing automation. E-Systems, being more labor-intensive than Seating, is a key area for these efficiency improvements. Lear plans to boost its capital expenditures on automation and advanced manufacturing to $150 million in 2024, up from $100 million, anticipating a quick return on investment within 1.5 years for Seating automation projects and 2-3 years for E-Systems.
The company's strategic initiatives implemented throughout 2024 and into 2025 are expected to yield cumulative run rate savings of $150 million. InvestingPro data shows Lear maintains a strong financial position with a 3.19% dividend yield and a 14-year track record of consistent dividend payments. In response to potential tariff risks affecting exports from Mexico, Lear's management has a strategy to pass on any costs to original equipment manufacturers (OEMs) and is considering a partial production shift from Mexico to Honduras. For deeper insights into Lear's financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
TD Cowen has revised its estimates for Lear's production for the years 2025 through 2027, leading to the lowered price target. The new target is based on a multiple of 5 times and 8 times FY25E EV/EBITDA for the Seating and E-Systems segments, respectively. Despite the lowered price target, TD Cowen maintains a positive outlook on Lear's stock with a continued Buy rating, aligning with management's confidence as demonstrated by their recent share buyback activities.
In other recent news, Lear Corporation, an automotive technology leader, has seen a downgrade in stock from Barclays (LON:BARC) due to concerns over challenging macroeconomic conditions impacting auto parts suppliers. Despite Lear's strong position in the Seating market, it has faced significant challenges, including a weaker-than-expected Light Vehicle Production environment and customer mix headwinds leading to negative earnings pressure. Barclays lowered the price target on the stock to $120 from the previous $140.
In terms of financial performance, Lear reported Q3 2024 financial results with $5.6 billion in revenue and core operating earnings of $257 million, despite a 3% year-over-year sales decline. The company outperformed industry production and has a robust pipeline of opportunities, particularly in seating, with conquest awards exceeding $3 billion.
Lear is making strategic moves in China, expecting significant growth and a shift in market share towards domestic automakers. Despite a decrease in revenue and core operating earnings from previous estimates due to anticipated lower global vehicle production, the company revised its 2024 guidance, anticipating $23 billion in revenue and core operating earnings of $1.07 billion. These are the recent developments for Lear Corporation.
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