Last week, you might have seen that Lear Corporation (NYSE:LEA) released its annual result to the market. The early response was not positive, with shares down 5.7% to US$126 in the past week. The result was positive overall – although revenues of US$20b were in line with what analysts predicted, Lear surprised by delivering a statutory profit of US$12.75 per share, modestly greater than expected. Earnings are an important time for investors, as they can track a company’s performance, look at what top analysts are forecasting for next year, and see if there’s been a change in sentiment towards the company. We’ve gathered the most recent statutory forecasts to see whether analysts have changed their earnings models, following these results.
Following last week’s earnings report, Lear’s 17 analysts are forecasting 2020 revenues to be US$20.0b, approximately in line with the last 12 months. Statutory earnings per share are expected to swell 11% to US$14.14. Yet prior to the latest earnings, analysts had been forecasting revenues of US$20.1b and earnings per share (EPS) of US$14.88 in 2020. So it looks like there’s been a small decline in overall sentiment after the recent results – there’s been no major change to revenue estimates, but analysts did make a minor downgrade to their earnings per share forecasts.
The consensus price target held steady at US$141, with analysts seemingly voting that their lower forecast earnings are not expected to lead to a lower stock price in the foreseeable future. The consensus price target just an average of individual analyst targets, so – considering that the price target changed, it would be handy to see how wide the range of underlying estimates is. Currently, the most bullish analyst values Lear at US$167 per share, while the most bearish prices it at US$110. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Lear shareholders.
Further, we can compare these estimates to past performance, and see how Lear forecasts compare to the wider market’s forecast performance. It’s pretty clear that analysts expect Lear’s revenue growth will slow down substantially, with revenues next year expected to grow 0.9%, compared to a historical growth rate of 3.5% over the past five years. By way of comparison, other companies in this market with analyst coverage, are forecast to grow their revenue at 4.9% per year. Factoring in the forecast slowdown in growth, it seems obvious that analysts still expect Lear to grow slower than the wider market.
The Bottom Line
The most important thing to take away is that analysts downgraded their earnings per share estimates, showing that there has been a clear decline in sentiment following these results. On the plus side, there were no major changes to revenue estimates; although analyst forecasts imply revenues will perform worse than the wider market. The consensus price target held steady at US$141, with the latest estimates not enough to have an impact on analysts’ estimated valuations.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Lear going out to 2022, and you can see them free on our platform here..
You can also see whether Lear is carrying too much debt, and whether its balance sheet is healthy, for free on our platform here.
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