How Lear's M&A Strategy Helped Turned JPMorgan Bullish

Automotive supplier company Lear Corporation LEA deserves credit for a series of acquisitions that better position the company to grow, according to JPMorgan.

The Lear Analyst: Ryan Brinkman upgraded Lear from Neutral to Overweight with a price target lifted from $149 to $210.

The Lear Thesis: Lear is a seating supplier to the automotive market, but it generates around 33% of its profit from electrical architecture, such as signal and power distribution within and without the vehicle, Brinkman said in an upgrade note.

To help with exposure to the lucrative growth market, Lear has closed multiple acquisitions over the years, including Autonet, Arada Systems, EXO and XEVO, the analyst said. 

Most notably, XEVO focuses on software, artificial intelligence and data analytics, including Journeyware, which offers exposure to in-care software, mobile device software, and cloud software, he said. 

The core seating business is expected to outgrow the industry average by several percentage points per year, Brinkman said.

Lear could guide to even more growth, and this could help lift Lear's stock, which trades at a notable discount to its peers.

Shares of Lear are trading at just 6.7 times NTM EBITDA estimates and 12.3 times NTM consensus EPS.

The cheap valuation makes the stock an "inexpensive way to gain leverage to popular industry growth themes," according to JPMorgan.

LEA Price Action: Shares of Lear lost 0.49% in Friday's session, closing at $167.08. 

Photo by Denys Nevozhai via Unsplash.