Lear Stock Works to Continue its Strong Recovery

The equity could clear a key trendline today

Jul 19, 2022 at 10:32 AM
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Lear Corporation (NYSE:LEA) is readying itself to enter the earnings confessional before the open on Aug. 2. LEA has beat earnings expectations on two of their last four earnings reports. Most recently, Lear reported earnings per share (EPS) of $1.80 and beat expectations by a margin of $0.23. Wall Street anticipates that the automotive technology company will post a drop in earnings down to $1.44 per share in the upcoming earnings report.

Digging deeper, LEA has a mixed post-earnings history going back two years. After four of these reports, the equity was higher, while three of these next-day sessions were negative, and one was flat. Lear stock averaged a post-earnings return of 1.9% during these last eight sessions. 

Short-term options traders have been incredibly put-biased ahead of the report. This is per LEA's Schaeffer's put/call volume ratio of 4.52, which sits higher than all but 1% of readings from the past year. 

Today, LEA is up 5.4% to trade at $136.30. Since early April, the stock has been chopping around the $140 level, with a breakout above here rejected by the 100-day moving average. Today's positive price action could mark the equity's first close above this trendline since February, though LEA is still down more than 25% in 2022. 

lea july 19

The global auto tech business has begun to recover after reporting back-to-back years of top- and bottom-line declines. For fiscal 2021, LEA reported a 13% increase in revenues and a 136% increase in net income. Previously, Lear had experienced a 14% decrease in revenues and an 80% decline in net income for fiscal 2020. The firm also saw a 6% decrease in revenues and a 31% decline in net income for fiscal 2019.

In contrast, Lear is now expected to generate 8.6% revenue growth 9.7% earnings growth for fiscal 2022. Furthermore, its growth is expected to pick up for fiscal 2023, with estimates indicating a 14.8% increase in revenues and an 86.5% increase in earnings. In addition, Lear stock maintains a solid valuation at a forward price-earnings ratio of 15.17 and a price-sales ratio of 0.41. LEA also provides a dividend yield of 2.38% with a forward dividend of $3.08.

LEA, however, holds a weak balance sheet with $1.16 billion in cash and $3.3 billion in total debt. This means that Lear stock offers little security for fundamental-based investors, but provides an intriguing opportunity for value investors due to the business’ expected recovery over the coming years.


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