Lear Receives Another Bullish Rating Following Months Of Underperforming The S&P 500

Analysts at Baird upgraded shares of the automotive parts supplier Lear Corporation LEA after the stock's underperformance over the last two to three months versus the S&P 500 index.

Baird's David Leiker upgraded Lear from Neutral to Outperform with a price target raised from $160 to $161 for three main reasons.

1. Strengthening Fundamentals

First, according to Leiker, Lear's fundamentals remain strong, including expectations for above market growth, a free cash flow conversion of 80 to 90 percent that can be used for continued buybacks and M&A activity and strong e-systems/seating growth.

2. Valuation

According to Leiker, Lear's stock is trading at just 4.8x its 2017 EBITDA estimate, which represents a discount to the stock's three-year median of 5.6x EBITDA. The analyst's $161 price target is based on the 5.6x EBITDA multiple, but it is possible that the company's strong fundamentals could push the stock's valuation toward the supplier median's multiple of 6.5x LTM EBITDA.

3. Positive Reversals

Finally, Leiker argued that Lear has turned out of favor among Wall Street analysts where just over one-third of the Street's rations are Buy-rated. As such, most of the Street is working under the assumption that Lear's story "has played out," which sets up the possibility for a reversal in the stock if the analyst's thesis plays out.

Bottom line, Lear's stock has suffered a setback over the past few months despite strong fundamentals at both the company and industry-wide level.

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Jim Cramer On Genuine Parts: The Amazon-Resistant Company 'Doesn't Get Enough Credit' _______ Image Credit: By Dwight Burdette (Own work) [CC BY 3.0 (http://creativecommons.org/licenses/by/3.0)], via Wikimedia Commons