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

-10.87%
Downside
146
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 has helped improve the margins for the electrical segment to record levels so far this year.

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Lear Q&A 15

Lear’s commitment to expanding its low-cost footprint, and increasing operational efficiencies, could see margin for the electrical segment increase beyond our current estimate. Trefis estimates Lear’s electrical adjusted EBITDA margin to increase from 14.2% in 2015 to 14.5% in 2021, seeing how the margin has already grown by a considerable 780 basis points since 2011 and might not grow at a fast pace now. However, if the figure increases to 16.5% by the end of the forecast period, there could be a 5% upside to our current valuation of $122 per share. This also means that the effect of the 200 basis points growth in the electrical segment’s margin won’t have as big an impact on Lear’s stock, as would the 120 basis points increase in 2021 margin estimate for the seating segment, which is estimated to cause a 10% upside to the current Lear valuation estimate.

Lear Q&A 16

Have more questions on Lear Corporation? See the links below.

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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