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Bear of the Day: Lear Corp. (LEA)

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  • LEA

Lear Corporation LEA is getting hit by the semiconductor shortage. This Zacks Rank #5 (Strong Sell) saw revenue fall 13% in the third quarter.

Lear is a leading provider of Seating and E-Systems for the automotive industry. Headquartered in Michigan, it has employees in 38 countries.

An Earnings Miss in the Third Quarter

Lear reported third quarter results on Nov 2 and missed on the Zacks Consensus Estimate by $0.03. Earnings were $0.53 versus the Zacks Consensus of $0.56.

While it saw sales growth over the market of 9 percentage points, sales did decrease to $4.3 billion from $4.9 billion a year ago due to global vehicle production declines related to the semiconductor shortage.

Without those semiconductors, they can't deliver the cars.

In the quarter, Lear entered into an agreement to acquire Kongsberg Automotive's Interior Comfort Division, a leader in massage and lumbar for automotive seating applications.

Lowered Full Year Guidance

Due to lower auto production, Lear lowered its full year sales guidance to a range of $18.8 billion to $19.2 billion from its prior guidance given in the second quarter of $19.7 billion to $20.5 billion.

5 analysts cut their full year earnings estimates for both 2021 and 2022. One analyst even lowered their 2021 estimate in the last week.

The 2021 Zacks Consensus Estimate fell to $7.83 from $11.55 just 90 days ago.

That's still earnings growth of 46.9% as the company made just $5.33 last year, as the pandemic hit.

2022 is expected to look brighter still, even though analysts have gotten less bullish on it in the past month.

The 2022 Zacks Consensus has fallen to $15.21 from $18.12 in the prior 90 days, but that's still up 94% from this year.

Raised its Dividend Again

On Nov 18, Lear announced it was raising its quarterly dividend to $0.77 from $0.50. It's payable on Dec 29 to shareholders of record as of the close of business on Dec 10, 2021.

That increase returned the dividend to its pre-pandemic levels.

It's currently yielding 1.7%.

A Buying Opportunity?

While shares of Lear are off their 2020 coronavirus lows, they have been weak over the last 6 months thanks to the semiconductor shortage.

Shares have fallen 7.9% during that time.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

With the earnings estimates being cut, the shares aren't cheap on a forward P/E basis. They're trading at 22.9x.

But investors interested in the auto parts plays, might want to keep Lear on their watch list for changes to a more favorable Zacks Rank and because the shares will get even cheaper on further weakness.

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