Lear Analyst: E-Systems Segment To Blame For Weak Results

Lear Corporation LEA reported preliminary second-quarter results that were short of consensus expectations and reduced its full-year financial outlook.

The auto supplier has now disappointed in three of the last five quarters and its credibility has taken another hit, according to Buckingham Research Group.

The Analyst

Joseph Amaturo downgraded Lear from Buy to Neutral and reduced the price target from $180 to $140.

The Thesis

Lear preannounced disappointing results for the second quarter and lowered its full-year outlook by a double-digit percentage, Amaturo said in a Wednesday downgrade note. (See his track record here.)

The factors affecting the company’s performance seem to be mainly confined to the E-Systems segment, the analyst said. The business segment develops automotive electrical distribution systems. 

While this segment has historically generated operating margins in the mid-teens, it has been under substantial pressure in recent quarters, he said. 

The problems at E-Systems are wide-ranging, encompassing volume, mix, pricing and productivity, Amaturo said. 

The quarterly earnings miss and lower full-year outlook are weighing on investor confidence and there are unlikely to be any positive catalysts in the near-term, the analyst said.

Buckingham reduced the FCF and EPS estimates for 2019 from $944 million to $693 million and from $17.04 to $14.80, respectively, to reflect changes in the topline and margin assumptions and higher assumed shares outstanding.

Price Action

Lear shares were down 2.44% at $126.58 at the time of publication Wednesday. 

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