Goldman Downgrades Lear Corporation To Sell Amid Elevated Expectations

Despite acknowledging the company's solid execution, analyst David Tamberrino noted that the investors and the sell side have been accustomed to the beat and raise story, and expectations are now at the top end of management guidance.

"As a result, we believe shares could see a pullback on just achieving the top end of management guidance," Tamberrino wrote in a note.

Further, the analyst said the company could face stiff competition from Johnson Controls Automotive on future business awards, pricing and margins. The rival is re-investing and increasing its bidding activity.

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"While Lear (17 percent) is a top player within the Auto seating business — with core capabilities above and beyond its competitors, the company is behind Johnson Controls' Automotive segment (27 percent) in market share," the analyst continued.

Moreover, Tamberrino warned that seating business could see incremental pricing pressure in the later stages of the North American auto cycle as it is a commoditized segment.

Tamberrino cut his six-month price target to $107 from $116 on lowered EPS estimates due to a fall in North America production. The analyst cut 2016/2017 EPS view to $13.35/$13.92 from $13.50/$14.26.

Shares of Lear closed Wednesday's regular trading at $124.46. The revised price target of $107 implies 12 percent downside vs. -1 percent average for GS overall Autos coverage. At last check, Lear was down 2.16 percent at $121.77 in Thursday's pre-market session.

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