LEA - Embedded Expectations Analysis - 2021 09 17
Lear Corp. (LEA:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 12.6x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management may have concerns about continued production disruptions, higher commodity costs, and Seating sales growth.Specifically, management may have concerns about component shortages and production downtimes, higher commodity costs, and the strength of global auto demand. In addition, they may lack confidence in their ability to sustain their Seating business sales growth, extend their competitive advantage in manufacturing, and add more active safety sensors to vehicles. Moreover, management may be overstating the efficiency of their investments in the Seating business, their position to benefit from electrification, and the diversity of products they offer in the E-Systems portfolio. Finally, they may be overstating the potential of the new Detroit plant and their packaging and connection systems offerings for EVs, as well as the capabilities of their autonomous programs.
Lear is a supplier to the automotive industry. The company supplies seating, electrical distribution systems and electronic modules, as well as related sub-systems, components and software, to automotive manufacturers. The company has two segments: Seating, which consists of the design, development, engineering, just-in-time assembly and delivery of seat systems, and the design, development, engineering and manufacture of seat components; and E-Systems, which consists of the design, development, engineering and manufacture of electrical distribution systems, and electronic control modules, electrification products, connectivity products and software solutions for the cloud, vehicles and mobile devices.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
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