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Lear Rides on Product Mix Improvement, Margin Woes Linger


We issued an updated research report on Lear Corporation LEA on Jul 12.

The company is a leading supplier of automotive seating and electrical systems (E-Systems), catering to several major automakers in the world. Both Seating and E-Systems segments offer huge growth opportunities. The rising mix of high-content crossover, luxury vehicles and sports utility vehicles (SUVs) is likely to drive the demand for the Seating segment. On the other hand, rising consumer demand for vehicle content along with growing electrification and connectivity requirements are propping up demand for the E-Systems segment.

Also, Southfield, MI-based Lear plans to launch many programs in fiscal 2018, with added content and opportunities for a profitable product-mix improvement. With its unique product capabilities in Seating and E-Systems, along with the continued convergence of the two segments, the company is extremely well positioned for growth in the future.

However, higher investments, to support backlog, significant program changeovers, accelerated new business activities and higher commodity costs — mainly on accounts of steel and copper, are straining the company’s margins.

In the past year, Lear’s stock has surged 26.9%, outperforming 9.9% increase recorded by the industry it belongs to.

Lear currently has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the auto space are American Axle & Manufacturing Holdings, Inc. AXL, Magna International Inc. MGA and Fox Factory Holding Corp. FOXF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Axle & Manufacturing has an expected long-term growth rate of 8.1%. Over the past three months, shares of the company have inched up 0.2%.

Magna has an expected long-term growth rate of 8.5%. Over the past year, shares of the company have gained 24.7%.

Fox Factory has an expected long-term growth rate of 12.5%. Shares of the company have risen 42% over the past year.

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