Lear Announces 2:1 Stock Split And $400M Share Buyback

Deutsche Bank has published a research report on Lear Corporation LEA after the company announced a 2:1 stock split and a $400M share buyback. In the report, Deutsche Bank writes "Lear announced a 2:1 stock split, $400MM share buyback, and instituted a $0.25 per share annual dividend (on a pre split basis). Assuming a $115 purchase price for the stock, the buyback authorization is approximately 6.3% of the shares outstanding. We estimate the repurchase will be approximately $0.64 (on a pre-split basis) accretive to our current 2012 EPS forecast of $10.57. In addition to the buyback, the dividend represents an additional $50MM annual cash return to shareholders. Overall, we view both actions as positive and believe the accretive use of Lear's excess cash should ultimately drive improved valuation. We would have previously noted that Lear has more than $1 bn excess cash (out of their $1.7 bn cash at year end), and they will generate an additional $400MM+ free cash this year. Therefore, we believe that additional repurchases (or other uses) are likely once this authorization is exhausted." Deutsche Bank maintains its Buy rating and $135 price target. Lear Corporation closed yesterday at $111.13.