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Bear of the Day: Lear (LEA)

Tracey Ryniec

Lear Corporation (LEA) is facing the global slowdown in the auto industry. This Zacks Rank #5 (Strong Sell) recently cut its full year guidance.

Lear makes seating and electrical and electronic systems for every major automaker in the world. It is headquartered in Michigan and has employees in 39 countries.

A Miss in the Second Quarter

On July 26, Lear reported its second quarter 2019 results and missed on the Zacks Consensus by 4 cents.

Earnings were $3.78 versus the Zacks Consensus of $3.82.

Sales fell 10% to $5 billion from $5.6 billion in the year ago quarter. Excluding the impact of foreign exchange and the Xevo acquisition, sales were down 6.7%.

In the second quarter, global vehicle production was down more than 7% compared to 2018 with China falling 17% and Europe declining 7%.

Lear's results are going to be impacted by the global trends.

Lear Cuts Guidance

Lear didn't mince words in July. It said it was facing a challenging macroeconomic and industry environment which does not look like it will end soon.

It cut its full year sales guidance to a range of $19.8 billion to $20.3 billion from its prior forecast of $20.9 billion to $21.7 billion.

Analysts also cut their 2019 and 2020 full year earnings estimates.

9 estimates were cut in the last 60 days for 2019 pushing the Zacks Consensus down to $14.98 from $17.45 just 2 months ago.

That's an earnings decline of 17.8% as Lear made $18.22 in 2018.

9 estimates were also cut in the last 60 days for 2020 pushing the Zacks Consensus down to $15.88 from $18.97. Analysts see a little bit of growth moving forward as that's earnings growth of 6%.

Shares Sink

It's been tough to be a shareholder over the last year as they have sunk 34.5%.

But they now trade with a forward P/E of only 7.

And the company is shareholder friendly with a dividend yielding 2.8% as well as a share buyback program which began in early 2011.

In the second quarter, the company repurchased $162 million and still has $1.3 billion remaining in the program which goes through Dec 31, 2021. It will reflect 16% of its total market capitalization at current prices.

The auto industry is a tough market this year. For investors looking to get in, Allison Transmission (ALSN) and Magna International (MGA) are two in the industry that have better Zacks Ranks. They are Zacks Rank #2 (Buy) and Zacks Rank #3 (Hold) stocks, respectively.

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