• Lear is still going strong and all indicators look good
  • I recommend we HOLD


  • Analyst recommendation 2.1
  • PEG 0.71
  • EPS next 5Y 18%
  • Performance     month: -1%, quarter 9%, 6 month 4%, year 29%


  • Lear, the maker of automotive seating and electrical systems, has benefited from an increase to its sales of premium seating, as sales of luxury cars have likewise begun to trend upwards.
  • Lear has enjoyed a very strong run of late, gaining 13.51% over the fourth quarter of 2014, and already appreciating another 12.48% in 2015.
  • Lear announced that its board of directors has increased its share repurchase authorization to $1 billion. Lear also announced a 25% increase in the quarterly dividend for 2015 to 25 cents per share from 20 cents paid a year ago. Thus, the dividend yield increased to 0.92% from 0.74% recorded.
  • The company’s business segments can be categorized into seating, which earns 75% of the company’s revenues, and electrical, which earns 25%.
  • Having come off a low base, global automobile production has been on an uptrend over the past five years. Automotive production volumes have increased at a CAGR (compound annual growth rate) of 4% over the past five-year period and have reached 85.6 million units.
  • Going into 2015, IHS Automotive predicts the growth streak will continue with volumes likely to reach 88.6 million, fueled by cheaper availability of credit, lower fuel prices, and increased consumer confidence. From a geographical standpoint, Europe is expected to be adversely affected by the political turmoil in Russia, but the growth in North America and China is likely to more than offset this decline.
  • Lear completed the acquisition of Eagle Ottawa in early January. Eagle Ottawa is the world’s largest supplier of premium automotive leather.
  • A sales backlog serves as an indicator of future sales from newly awarded programs. Lear has a backlog of $2 billion for 2015 to 2017 with approximately 75% in seating and 25% in electrical, which shows that the company has solid growth prospects.


  • Richard McGuire’s fund, 5.3% stake in the company, the fund sent a letter to Lear’s CEO, Matt Simoncini, requesting that the company split up its core business units, electrical and seating, into two publicly traded companies in order to unlock significant value for its shareholders.
  • According to the Wall Street Journal, Richard McGuire believes that Lear’s combined business units are deeply undervalued and a split could maximize shareholder value by a substantial amount. Commenting on the split up, Richard McGuire remarked, “We believe a separation could result in a combined value of $145 per share, approximately 45% above the company’s recent share price.”
  • On February 3, 2015, Lear responded to Marcato’s suggestions by stating the company is ready to review the prospects of the split up
  • The segments do not share any cost synergies, so splitting them up makes sense at this point, as the high margin electrical segment, which is entering its growth phase, could benefit from being an independent entity.

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