Citi's 4 Reasons Why Lear's Outperformance Should Continue

In a report issued Monday, Citi analyst Itay Michaeli provided four reasons why Lear Corporation LEA will continue to outperform its peers. He reiterated a Buy rating on the stoc and raised his price target from $117 to $118.

Related Link: Credit Suisse Raises Price Target On Lear Corporation On Solid 4Q14 Results

The four reasons behind Lear’s expected outperformance going forward:

1) “The Electrical margin revision story hasn’t fully played out yet. The segment has now delivered two consecutive 13.3% margin quarters heading into a 2015 guide of 12.5-13.0%. With raw material tailwinds likely offsetting FX, we see further room for modest upward revisions in 2015 (Citi at 13.2%). Recall too that this segment directly benefits from ‘Car of the Future’ exposures (wires/connectors).”

2) The company’s Seat segment continues to see a declining bear case around its margins as quarters go by. “Improved execution, strong 2015-16 backlog and positive read from JCI’s LT seat margin objectives suggest to us that Lear’s Seat margins can continue rising to the mid-6% range by 2017.”

3) The company’s consistent outperformance in the revenue front continues to be underappreciated by the market, Citi analysts believe. Even when excluding the backlog, Lear’s 2015 revenue guidance stands well above its peers’ in terms of growth. “And speaking of the backlog, a solid 2015 comes ahead of an even higher 2016 —providing investors with the visibility for continued top-line outperformance next year. Lear might also directly benefit from lower gas prices both because of affordability (richer trim levels) and segment mix (SUVs).”

The firm sees “a path for 2-4pts of revenue outperformance vs. industry production.”

4) There is still some cash deployment potential left (0.3x turns of room by Citi’s math), and analysts expect “a continued shareholder friendly approach in 2015.”