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Moody’s Upgrades Lear Corporation’s Notes, Provides Stable Outlook

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Price movement

Lear Corporation (LEA) has a market cap of $8.9 billion. It rose 1.8% to close at $120.71 per share on September 22, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 3.2%, 4.5%, and -0.92%, respectively, on the same day.

LEA is trading 4.1% above its 20-day moving average, 5.7% above its 50-day moving average, and 8.7% above its 200-day moving average.

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Related ETF and peers

The iShares Edge MSCI USA Value Factor ETF (VLUE) invests 0.25% of its holdings in Lear (LEA). The ETF tracks an index of large-cap and mid-cap US equities. Stocks are selected and weighted using fundamental metrics (earnings, revenue, book value, and cash earnings), aiming for exposure to undervalued stocks in each sector. The YTD price movement of VLUE was 5.7% on September 22.

The market caps of Lear’s competitors are as follows:

  • Johnson Controls (JCI) — $42.7 billion
  • Delphi Automotive (DLPH) — $19.2 billion
  • Magna International (MGA) — $16.4 billion

Latest news on Lear

Moody’s Investors Service has upgraded the rating for Lear Corporation’s senior unsecured notes due in 2023, 2024, and 2025 from “Ba1” to “Baa3.”

Moody’s has withdrawn Lear Corporation’s Corporate Family Rating of Ba1, Probability of Default rating of Ba1-PD, and Speculative Grade Liquidity rating of SGL-1. Moody’s gave rating outlook of “stable.”

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Performance in fiscal 2Q16

Lear Corporation (LEA) reported fiscal 2Q16 net sales of $4.7 billion, a rise of 2.2% from the net sales of $4.6 billion in fiscal 2Q15. Sales from North America and Asia fell 2.9% and 6.7%, respectively.

Sales from Europe and Africa rose 11.3%, and sales from South America rose 4.5% between fiscal 2Q15–fiscal 2Q16. The company’s cost of sales as a percentage of net sales fell 2.1%.

Lear’s net income and EPS (earnings per share) rose to $282.4 million and $3.82, respectively, in fiscal 2Q16, compared with $181.9 million and $2.33, respectively, in fiscal 2Q15. It reported adjusted EPS of $3.66 in fiscal 2Q16, a rise of 29.8% from fiscal 2Q15.

Lear’s cash and cash equivalents and inventories rose 16.6% and 6.7%, respectively, between fiscal 2Q15 and fiscal 2Q16. Its current ratio and long-term debt-to-equity ratio fell to 1.3x and 0.81x, respectively, in fiscal 3Q16, compared with 1.4x and 0.84x, respectively, in fiscal 4Q15. The company reported free cash flow of $435.4 million in fiscal 2Q16, a rise of 20.8% from fiscal 2Q15.

During fiscal 2Q16, the company repurchased ~2.3 million shares of its common stock, worth $250 million. At the end of fiscal 2Q16, it retained $595 million under its share repurchase program.

Projections

Lear Corporation (LEA) made the following projections for fiscal 2016:

  • sales of $18.5 billion–$18.8 billion
  • core operating earnings of $1.45 billion–$1.5 billion
  • free cash flow of $900 million
  • effective tax rate of 28%
  • adjusted net income of $935 million–$975 million
  • pretax operational restructuring costs of $70 million
  • capital spending of $525 million

These projections are based on the following assumptions of industry vehicle production:

  • 18.0 million units in North America
  • 22.3 million units in Europe and Africa
  • 24.0 million units in China

In the next part, we’ll take a look at Sony Corporation (SNE).

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