Here’s Why We Have Updated Our Price Estimate For Lear Corporation To $190

Lear Corporation (NYSE:LEA) recently announced its Q4 and full year 2017 results and we have updated our valuation model for the company based on these results. The most significant change in our model was lower tax rates going forward. In 2017, the company’s effective tax rate was around 13% much lower than the approximate 28% effective tax rate in 2016.  While 2017 had lower taxes due to several one-off adjustments, we now expect that Lear Corporation’s effective tax rate will be around 28% over our forecast period. We have changed this assumption since the U.S. statutory tax rate has been revised from 35% to 21% and we don’t expect that Lear will pay taxes at an effective rate of around 29-33% over our forecast period (which was our assumption before the change in the tax law).

The company management has not stated that the revised tax laws will lead to a significant change in its tax rates, however our revised assumption is now based on the average effective tax rate of the company for the past four years and does not factor in a significant increase in the future. Change in the tax rate assumption has impacted our price estimate significantly. Further we have made some changes to the company’s revenue estimates and working capital numbers, leading to a nearly 12% increase in our price estimate for the company.

Our interactive model can help you analyze the impact of these changes on the company’s price estimate.

 Based on the above changes we have modified our price estimate for Lear Corporation to $190.

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