What Does A Potential E-Systems Spinoff Mean For Lear?

While there’s renewed interest in a spinoff of Lear Corporation LEA’s electrical division E-Systems, the upside for such a move is already priced in, according to UBS.

Spinoffs announced at Autoliv Inc. ALV and Delphi Automotive PLC DLPH have left investors searching for more value-added spinoffs, analyst Colin Langan said in a Monday note.

“Not only do we believe management is not supportive of a spin, but following the 16-percent run in shares in the last 30 days (32 percent year-to-date), the spin upside appears to be already priced in,” Langan said (see his track record here).

A Lear activist unsuccessfully pushed for an E-Systems spinoff in 2015, according to UBS.

UBS downgraded Lear from Buy to Neutral on the basis of its valuation and raised its price target from $158 to $182.

The analyst firm raised its EPS estimates for 2017 from $16.45 to $16.70 and from $16.75 to $17.20 in 2018, which Langan noted is below the $17.45 consensus.

GM Truck Changeover Coming In 2018

General Motors Company GM’s full-size pickup and SUV platform — a $2.1 billion contract for Lear — accounts for an estimated 10 percent of the automotive supplier’s sales, according to UBS.

GM is executing a platform changeover in 2018. When the automaker last did so, Lear’s seating margins fell by 90 basis points year over year on “rising launch cost and operational inefficiencies,” Langan said.

IHS is forecasting a 16-percent decline in year-over-year volumes for the GM changeover, creating a $350 million sales headwind, according to UBS.

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Lear Shares Downgraded To Underweight Amid Weaker-Than-Expected US Auto Sales Forecast 

Friday's Sell-Off In Autoliv Shares Created An Opportunistic Entry Point For Long-Term Bulls