Rating Change #9
Lear Corporation (LEA) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself.
Highlights from the ratings report include:
- LEA's revenue growth has slightly outpaced the industry average of 19.6%. Since the same quarter one year prior, revenues rose by 22.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- LEA's debt-to-equity ratio is very low at 0.26 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.16, which illustrates the ability to avoid short-term cash problems.
- Net operating cash flow has increased to $155.60 million or 31.75% when compared to the same quarter last year. Despite an increase in cash flow of 31.75%, LEAR CORP is still growing at a significantly lower rate than the industry average of 327.56%.
- LEA has underperformed the S&P 500 Index, declining 10.08% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- The gross profit margin for LEAR CORP is currently extremely low, coming in at 10.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.90% trails that of the industry average.
Lear Corporation designs, manufactures, assembles, and supplies automotive seat systems, electrical distribution systems, and related components. The company operates in two segments, Seating and Electrical Power Management Systems (EPMS). The company has a P/E ratio of 7.9, below the average automotive industry P/E ratio of 8.4 and below the S&P 500 P/E ratio of 17.7. Lear has a market cap of $4.41 billion and is part of the consumer goods sector and automotive industry. Shares are down 19.7% year to date as of the close of trading on Tuesday.You can view the full Lear Ratings Report or get investment ideas from our investment research center.
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