Credit Suisse Maintains Outperform On Lear Corp, Deutsche Bank Boosts To Buy

July 27, 2015

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In a report published Monday, Credit Suisse analyst Dan Galves maintained an Outperform rating on Lear Corporation (NYSE: LEA), with a price target of $127, after the company reported impressive quarterly results.

Lear reported 2Q15 earnings of $2.82 per share, up 33 percent y/y on 1 percent revenue growth. Although the good performance was broad-based, Seating was the driving force, analyst Dan Galves said.

The company maintained its 2015 revenue guidance at $18.0-$18.5billion, while raising its core operating income and FCF guidance.

The EPS estimates for 2015, 2016 and 2017 have been raised from $9.72 to $10.07, from $11.13 to $11.34 and from $12.53 to $12.67, respectively.

Meanwhile, in an another report Deutsche Bank analyst Rod Lache upgraded the rating on Lear from Hold to Buy, while raising the price target from $120 to $122.

Lear’s 2Q earnings of $2.82 per share were ahead of the Deutsche Bank estimate of $2.46. The company’s total operating margins for the quarter were 7.3 percent, with Seating coming in at 7.1 percent and Electrical margins at 13.9 percent.

The company raised its full-year EBITDA forecast from $1.56-$1.61 billion to $1.59-$1.64 billion. Lear also raised its full-year free cash flow forecast from $575 million to $625 million as a result of upward revisions to their Seating and Electrical margins.

Lear now expects its Seating margins to be in the high 6 percent range for the full year, while that for Electricals are expected to be in the high 13 percent for the full year.

In the report Deutsche Bank noted, “Based on the company’s performance, we have re-assessed the trajectory of Lear’s margins, and we are adjusting our model to reflect our view that Lear can achieve a ~7% EBIT margin 3-years faster than we had previously assumed (we now assume 7% margins in 2016; our previous DCF model reflected achievement of this margin in 2019).”