# Lear (LEA)

Sector: Auto parts

| Field | Value |
|---|---|
| Price | $121.49 |
| Fair value (Analysts) | $168.00 |
| Discount to fair value | 27.7% |
| Fair value uncertainty (Analysts) | High |
| Economic moat (Analysts) | Narrow |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 2.53 |
| Data as of | 2026-10-16 |
| Next earnings | 2026-10-30 (confirmed) |

## In short

Investors see Lear as a low-margin supplier tied to car production and tariffs, so the gap closes slowly, only as margins rise and buybacks continue through the cycle.

## Themes and gap

- Themes: Tariffs and trade (trade-tariffs), Weak consumer (weak-consumer)
- Gap type: Slow (slow)
- Why: The market gives auto suppliers low values through the production cycle, so the gap closes only over several years of margin gains and buybacks.

## About

Lear is the largest US-based auto parts supplier. It has two segments, Seating and E-Systems. Seating makes complete car seats and their parts, such as trim covers, leather, mechanisms, headrests and seat heating and cooling systems. E-Systems makes wire harnesses, high-voltage and low-voltage power distribution products and electronic controllers. In Q2 2026, Seating had $4.6 billion of sales and E-Systems had $1.6 billion. Lear sells to car makers under contracts for the life of a vehicle model, so its sales follow how many cars its customers build. In 2025, General Motors gave 22% of its sales, Ford 12%, Mercedes-Benz and Volkswagen 10% each, and Stellantis 9%. Car makers usually ask for lower prices over the life of a model, and Lear offsets this with cost cuts, automation and restructuring.

## Thesis

The market prices Lear as a low-margin auto supplier whose profits depend on how many cars its customers build. Lear expects global production to fall about 2% in 2026 on a Lear sales-weighted basis, North America and Europe still build fewer cars than at their past peaks, and car makers ask for lower prices each year. Tariffs and the USMCA review add risk, because the United States declined on July 1, 2026 to extend the agreement for a new 16-year term. Slower electric vehicle sales also limit growth in high-voltage E-Systems products. Investors fear that Lear cannot grow its margin, which was 5.0% of sales in Q2 2026, through the cycle. For the gap to close, Lear must meet its raised 2026 outlook of $1,080 million to $1,200 million of core operating earnings and $590 million to $690 million of free cash flow. E-Systems margins must keep the improvement of Q2 2026, and the new Seating programs, such as the GM full-size SUVs and trucks, must launch as planned. Lear must also use its larger $1.5 billion buyback authorization while debt stays near its present level. The Q3 2026 report on October 30, 2026, and the Q4 report with the 2027 outlook in about February 2027 give the next evidence. Because the market gives auto suppliers low values through the cycle, the gap can close only slowly, over several years of margin gains and buybacks. A large production cut or new tariffs can stop it.

## Checkpoints

- Oct 30, 2026: Q3 2026 results: margins and the 2026 outlook. Status: Pending. Watch: Core operating margin near or above 5% and a held or raised 2026 outlook pass; a cut to the outlook because of lower production or tariffs fails.
- Feb 2027 (estimate): Q4 2026 results and 2027 outlook. Status: Pending. Watch: 2026 free cash flow in the $590 million to $690 million range and a 2027 outlook with higher margins pass; lower margins or cash flow fail.

## Balance sheet

- Cash: $1.0B
- Debt: $2.8B
- Net debt: $1.7B
- Interest cover: 11×
- Undrawn credit line: $2.0B, to July 2030
- Debt due within 12 months: $33M
- Last debt due: 2052

Debt is the principal of Lear's long-term debt at July 4, 2026, $2,720.7 million, plus $28.8 million of short-term borrowings. Most of it is six issues of senior unsecured notes, from $550 million of 3.8% notes due September 15, 2027 to $350 million of 3.55% notes due 2052, and a $50 million term loan due September 30, 2027. Interest cover is income before interest, other expense and taxes divided by interest expense for the first half of 2026. Lear also had $769.5 million of operating lease obligations, which are not in debt here. Total liquidity was $3.0 billion at July 4, 2026, and Lear was in compliance with its covenants. Lear says that it keeps investment grade credit metrics. Free cash flow was $288 million in Q2 2026, and the 2026 outlook is $590 million to $690 million. Lear bought back $175 million of shares in the first half of 2026, and its Board raised the buyback authorization to $1.5 billion on September 24, 2026.

As of 2026-07-04.

Sources:

- https://www.sec.gov/Archives/edgar/data/842162/000084216226000068/lear-20260704.htm
- https://www.sec.gov/Archives/edgar/data/842162/000084216226000065/lear-2026jul31_8xkxex991.htm
- https://www.sec.gov/Archives/edgar/data/842162/000084216226000080/lear-2026sept24_exx991.htm

## Recent events

- 2026-10-06: Lear said that it will hold its Q3 2026 earnings call on October 30, 2026.
- 2026-09-24: Lear's Board increased the share buyback authorization to $1.5 billion and extended it to December 31, 2029. At the end of Q2 2026, about $600 million was left on the old authorization.
- 2026-07-31: Lear reported Q2 2026 results and raised the midpoints of its 2026 outlook. Sales rose 3% to $6.2 billion, core operating earnings rose 7% to $313 million, and adjusted EPS rose 23% to $4.28. Free cash flow was $288 million, and Lear bought back $100 million of shares. The new 2026 outlook is $23,540 million to $24,010 million of sales and $1,080 million to $1,200 million of core operating earnings.
- 2026-07-01: In the joint review of the USMCA trade agreement, the United States declined to extend the agreement for another 16-year term in its current form. Lear said that this starts yearly reviews that could end the agreement in 2036 if no extension is agreed.
- 2026-05-01: Lear reported Q1 2026 results. Sales rose 5% to $5.8 billion, and adjusted EPS rose 24% to $3.87, the highest since 2019. Lear won new wire awards for General Motors' full-size SUVs and with Chinese car makers, and it launched seats for GM's full-size SUVs and trucks in Orion, Michigan. It bought back $75 million of shares.

## Risks

- High: Lear's sales follow car production. Lear expects global production to fall about 2% in 2026, and a recession or a production cut at a large customer such as General Motors, which gave 22% of 2025 sales, can cut earnings quickly.
- Medium: Tariffs and trade rules can change Lear's costs and its customers' production. The United States declined to extend the USMCA in its current form on July 1, 2026, and Lear's 2026 outlook excludes future tariff changes.
- Medium: Car makers ask for lower prices over the life of each model. If cost cuts and automation do not offset these price cuts and higher costs for steel, copper and leather, margins fall.
- Medium: Electric vehicle sales grow slower than expected, particularly in the United States. This limits demand for high-voltage E-Systems products, and E-Systems sales in North America fell in the first half of 2026.
- Low: Lear works in 36 countries and earns much of its sales in euros and other currencies. Exchange rates change its reported sales and earnings.

## Links

- Page: https://picks.kamadorueda.com/company/LEA/
- History of changes: https://picks.kamadorueda.com/company/LEA/history/
- JSON with full history: https://picks.kamadorueda.com/data/company/LEA.json

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