) recently reported its 7th consecutive positive earnings surprise
as it continues to benefit from a growing global automotive
industry. Following its most recent beat, management raised its
guidance for 2013, prompting a flurry of positive estimate
revisions from analysts.
This sent the stock to a Zacks Rank #1 (Strong Buy).
Lear Corporation supplies seating and electrical distribution
systems to the automotive industry. Approximately 76% of its sales
are in the 'Seating' segment with the remaining 24% coming from its
'Electrical Power Management Systems' segment. The company was
founded in 1917 and has a market cap of $5.7 billion.
Second Quarter Results
Lear delivered a solid 'beat & raise' quarter on July 26. The
company reported adjusted earnings per share of $1.62, crushing the
Zacks Consensus Estimate of $1.35. It was a 20% increase over the
same quarter last year, due in part to a significantly lower share
Net sales rose 12% to $4.113 billion, ahead of the consensus of
$3.904 billion. The Seating segment saw top-line growth of 10%, due
in part to an acquisition. Sales in the Electrical Power Management
Systems segment jumped 20%. Sales growth was strong in all
The gross profit margin declined from 8.6% to 8.2% of sales, but
selling, general and administrative (SG&A) expenses declined
from 3.2% to 3.1% of sales.
Following solid Q2 results, management revised its guidance higher
for the remainder of 2013. The company now expects full year sales
around $15.8 billion, up from its previous guidance of $15.0-$15.5
billion. It also raised its core operating earnings guidance by $25
million to a range of $750-$800 million.
This prompted analysts to revise their estimates significantly
higher for both 2013 and 2014, sending the stock to a Zacks Rank #1
(Strong Buy) stock. The 2013 Zacks Consensus Estimate is now $5.62,
up from $5.36 just 30 days ago. The 2014 consensus has moved from
$6.68 to $7.01 over the same period.
Shares of Lear are up almost 8% since the Q2 earnings report, but
there could be plenty more upside with shares trading at just 11x
forward earnings, a discount to the industry median of 13x. Its
price to book ratio of 2.3 is also below the industry multiple of
The Bottom Line
With strong industry tailwinds, stellar earnings momentum and
reasonable valuation, this automotive supplier offers attractive
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
LEAR CORPORATN (LEA): Free Stock Analysis
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