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Lear (LEA) Up 17.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Lear (LEA - Free Report) . Shares have added about 17.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Lear due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lear Delivers Impressive Q3 Results

Lear reported third-quarter 2020 adjusted earnings of $3.73 per share, surpassing the Zacks Consensus Estimate of $3.22. Higher-than-expected revenues from both the company’s segments led to the outperformance. It recorded earnings of $3.56 per share in third-quarter 2019. For the reported quarter, revenues increased 1.5% year over year to $4,900 million. The top line also beat the Zacks Consensus Estimate of $4,722 million.

Segment Performances

Sales in the Seating segment totaled $3,691.6 million for third-quarter 2020, reflecting a decline from the year-ago quarter’s $3,715 million. However, the metric surpassed the Zacks Consensus Estimate of $3,517 million. Adjusted segmental earnings came in at $286.3 million, lower than $303.5 million recorded in the third quarter of 2019. The segment recorded adjusted margins of 7.8% of sales.

Sales in the E-Systems segment summed $1208.5 million, up 8.8% year over year. The figure also topped the consensus mark of $1,082 million. Adjusted segmental earnings amounted to $93.1 million, higher than $84.7 million recorded in the year-ago quarter. For the E-Systems segment, adjusted margin was 7.7% of sales.

Financial Position

The company had $1,250.4 million of cash and cash equivalents as of Oct 3, 2020 compared with $1,487.7 million recorded on Dec 31, 2019. It had a long-term debt of $2.299.8 million as of Oct 3, 2020 compared with $2,293.7 million recorded on Dec 31, 2019.

At third quarter-end, cash provided by operating activities totaled $565 million, up 64.7% year over year. For the reported period, its capital expenditure amounted to $90.1 million, down from $150.8 million witnessed in the prior-year quarter. Free cash flow (FCF) came in at $474 million, higher than $192.6 million generated in the corresponding period of 2019.

2020 Guidance

Lear provided a full-year 2020 view that does not take into account any major coronavirus-led disruption and shutdown in the ongoing quarter. Full-year net sales are expected between $16.35 billion and $16.65 billion. Core operating earnings are forecast in the band of $520-$580 million. Capital spending is anticipated to be $425 million. FCF is envisioned in the range of $125-$175 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Lear has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Lear has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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