Intrinsic value of Lear Corporation - LEA

Previous Close

$141.72

  Intrinsic Value

$279.19

stock screener

  Rating & Target

str. buy

+97%

Previous close

$141.72

 
Intrinsic value

$279.19

 
Up/down potential

+97%

 
Rating

str. buy

We calculate the intrinsic value of LEA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 8.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  21,572
  22,068
  22,635
  23,272
  23,978
  24,752
  25,595
  26,507
  27,490
  28,545
  29,674
  30,878
  32,160
  33,523
  34,969
  36,502
  38,124
  39,839
  41,652
  43,566
  45,585
  47,715
  49,960
  52,325
  54,816
  57,438
  60,199
  63,104
  66,160
  69,375
Variable operating expenses, $m
  19,865
  20,319
  20,837
  21,419
  22,065
  22,772
  23,543
  24,377
  25,276
  26,241
  27,132
  28,234
  29,406
  30,652
  31,974
  33,376
  34,859
  36,427
  38,085
  39,835
  41,681
  43,628
  45,681
  47,843
  50,121
  52,519
  55,043
  57,700
  60,494
  63,433
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  19,865
  20,319
  20,837
  21,419
  22,065
  22,772
  23,543
  24,377
  25,276
  26,241
  27,132
  28,234
  29,406
  30,652
  31,974
  33,376
  34,859
  36,427
  38,085
  39,835
  41,681
  43,628
  45,681
  47,843
  50,121
  52,519
  55,043
  57,700
  60,494
  63,433
Operating income, $m
  1,707
  1,749
  1,798
  1,853
  1,913
  1,979
  2,052
  2,130
  2,214
  2,304
  2,541
  2,645
  2,754
  2,871
  2,995
  3,126
  3,265
  3,412
  3,567
  3,731
  3,904
  4,086
  4,279
  4,481
  4,695
  4,919
  5,156
  5,404
  5,666
  5,941
EBITDA, $m
  2,255
  2,307
  2,366
  2,433
  2,506
  2,587
  2,675
  2,771
  2,874
  2,984
  3,102
  3,228
  3,362
  3,504
  3,655
  3,816
  3,985
  4,165
  4,354
  4,554
  4,765
  4,988
  5,222
  5,470
  5,730
  6,004
  6,293
  6,596
  6,916
  7,252
Interest expense (income), $m
  89
  106
  114
  124
  134
  146
  160
  174
  190
  207
  226
  246
  267
  290
  314
  340
  367
  396
  427
  459
  494
  530
  568
  608
  651
  695
  742
  792
  844
  899
  957
Earnings before tax, $m
  1,601
  1,635
  1,675
  1,718
  1,767
  1,820
  1,877
  1,940
  2,006
  2,078
  2,295
  2,377
  2,464
  2,557
  2,655
  2,759
  2,869
  2,985
  3,108
  3,238
  3,374
  3,519
  3,671
  3,831
  3,999
  4,177
  4,364
  4,560
  4,767
  4,985
Tax expense, $m
  432
  442
  452
  464
  477
  491
  507
  524
  542
  561
  620
  642
  665
  690
  717
  745
  775
  806
  839
  874
  911
  950
  991
  1,034
  1,080
  1,128
  1,178
  1,231
  1,287
  1,346
Net income, $m
  1,169
  1,194
  1,222
  1,254
  1,290
  1,328
  1,370
  1,416
  1,465
  1,517
  1,676
  1,735
  1,799
  1,866
  1,938
  2,014
  2,094
  2,179
  2,269
  2,363
  2,463
  2,569
  2,679
  2,796
  2,919
  3,049
  3,186
  3,329
  3,480
  3,639

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  11,833
  12,105
  12,417
  12,766
  13,153
  13,577
  14,040
  14,540
  15,080
  15,658
  16,277
  16,938
  17,641
  18,389
  19,182
  20,023
  20,913
  21,854
  22,848
  23,898
  25,006
  26,174
  27,405
  28,703
  30,069
  31,508
  33,022
  34,615
  36,292
  38,055
Adjusted assets (=assets-cash), $m
  11,833
  12,105
  12,417
  12,766
  13,153
  13,577
  14,040
  14,540
  15,080
  15,658
  16,277
  16,938
  17,641
  18,389
  19,182
  20,023
  20,913
  21,854
  22,848
  23,898
  25,006
  26,174
  27,405
  28,703
  30,069
  31,508
  33,022
  34,615
  36,292
  38,055
Revenue / Adjusted assets
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
  1.823
Average production assets, $m
  3,301
  3,376
  3,463
  3,561
  3,669
  3,787
  3,916
  4,056
  4,206
  4,367
  4,540
  4,724
  4,921
  5,129
  5,350
  5,585
  5,833
  6,095
  6,373
  6,666
  6,975
  7,300
  7,644
  8,006
  8,387
  8,788
  9,210
  9,655
  10,122
  10,614
Working capital, $m
  324
  331
  340
  349
  360
  371
  384
  398
  412
  428
  445
  463
  482
  503
  525
  548
  572
  598
  625
  653
  684
  716
  749
  785
  822
  862
  903
  947
  992
  1,041
Total debt, $m
  2,113
  2,287
  2,486
  2,708
  2,955
  3,226
  3,521
  3,841
  4,185
  4,554
  4,949
  5,370
  5,819
  6,296
  6,802
  7,338
  7,906
  8,506
  9,141
  9,811
  10,517
  11,263
  12,048
  12,876
  13,748
  14,666
  15,632
  16,648
  17,718
  18,843
Total liabilities, $m
  7,550
  7,723
  7,922
  8,145
  8,391
  8,662
  8,957
  9,277
  9,621
  9,990
  10,385
  10,807
  11,255
  11,732
  12,238
  12,775
  13,342
  13,943
  14,577
  15,247
  15,954
  16,699
  17,484
  18,312
  19,184
  20,102
  21,068
  22,085
  23,154
  24,279
Total equity, $m
  4,284
  4,382
  4,495
  4,621
  4,761
  4,915
  5,082
  5,264
  5,459
  5,668
  5,892
  6,132
  6,386
  6,657
  6,944
  7,248
  7,570
  7,911
  8,271
  8,651
  9,052
  9,475
  9,921
  10,390
  10,885
  11,406
  11,954
  12,531
  13,138
  13,776
Total liabilities and equity, $m
  11,834
  12,105
  12,417
  12,766
  13,152
  13,577
  14,039
  14,541
  15,080
  15,658
  16,277
  16,939
  17,641
  18,389
  19,182
  20,023
  20,912
  21,854
  22,848
  23,898
  25,006
  26,174
  27,405
  28,702
  30,069
  31,508
  33,022
  34,616
  36,292
  38,055
Debt-to-equity ratio
  0.490
  0.520
  0.550
  0.590
  0.620
  0.660
  0.690
  0.730
  0.770
  0.800
  0.840
  0.880
  0.910
  0.950
  0.980
  1.010
  1.040
  1.080
  1.110
  1.130
  1.160
  1.190
  1.210
  1.240
  1.260
  1.290
  1.310
  1.330
  1.350
  1.370
Adjusted equity ratio
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,169
  1,194
  1,222
  1,254
  1,290
  1,328
  1,370
  1,416
  1,465
  1,517
  1,676
  1,735
  1,799
  1,866
  1,938
  2,014
  2,094
  2,179
  2,269
  2,363
  2,463
  2,569
  2,679
  2,796
  2,919
  3,049
  3,186
  3,329
  3,480
  3,639
Depreciation, amort., depletion, $m
  548
  557
  568
  580
  593
  608
  624
  641
  660
  680
  561
  583
  607
  633
  661
  689
  720
  753
  787
  823
  861
  901
  944
  988
  1,035
  1,085
  1,137
  1,192
  1,250
  1,310
Funds from operations, $m
  1,717
  1,751
  1,790
  1,834
  1,883
  1,936
  1,994
  2,057
  2,124
  2,197
  2,236
  2,319
  2,406
  2,500
  2,599
  2,703
  2,814
  2,932
  3,056
  3,186
  3,324
  3,470
  3,623
  3,785
  3,955
  4,134
  4,323
  4,521
  4,730
  4,949
Change in working capital, $m
  6
  7
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
  46
  48
Cash from operations, $m
  1,710
  1,744
  1,782
  1,825
  1,873
  1,925
  1,982
  2,043
  2,110
  2,181
  2,219
  2,301
  2,387
  2,479
  2,577
  2,680
  2,790
  2,906
  3,028
  3,158
  3,294
  3,438
  3,589
  3,749
  3,918
  4,095
  4,281
  4,477
  4,684
  4,901
Maintenance CAPEX, $m
  -399
  -407
  -417
  -428
  -440
  -453
  -468
  -483
  -501
  -519
  -539
  -561
  -583
  -607
  -633
  -661
  -689
  -720
  -753
  -787
  -823
  -861
  -901
  -944
  -988
  -1,035
  -1,085
  -1,137
  -1,192
  -1,250
New CAPEX, $m
  -70
  -76
  -87
  -97
  -108
  -118
  -129
  -140
  -150
  -161
  -173
  -184
  -196
  -209
  -221
  -234
  -248
  -262
  -277
  -293
  -309
  -326
  -343
  -362
  -381
  -401
  -422
  -444
  -468
  -492
Cash from investing activities, $m
  -469
  -483
  -504
  -525
  -548
  -571
  -597
  -623
  -651
  -680
  -712
  -745
  -779
  -816
  -854
  -895
  -937
  -982
  -1,030
  -1,080
  -1,132
  -1,187
  -1,244
  -1,306
  -1,369
  -1,436
  -1,507
  -1,581
  -1,660
  -1,742
Free cash flow, $m
  1,241
  1,260
  1,278
  1,300
  1,325
  1,353
  1,385
  1,420
  1,459
  1,500
  1,507
  1,556
  1,608
  1,663
  1,722
  1,785
  1,852
  1,923
  1,998
  2,078
  2,162
  2,251
  2,345
  2,444
  2,548
  2,658
  2,774
  2,896
  3,024
  3,160
Issuance/(repayment) of debt, $m
  150
  174
  198
  223
  247
  271
  295
  319
  344
  369
  395
  421
  449
  477
  506
  536
  568
  600
  634
  670
  707
  745
  786
  828
  872
  918
  966
  1,017
  1,070
  1,125
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  150
  174
  198
  223
  247
  271
  295
  319
  344
  369
  395
  421
  449
  477
  506
  536
  568
  600
  634
  670
  707
  745
  786
  828
  872
  918
  966
  1,017
  1,070
  1,125
Total cash flow (excl. dividends), $m
  1,391
  1,434
  1,477
  1,523
  1,572
  1,624
  1,680
  1,740
  1,803
  1,870
  1,902
  1,977
  2,057
  2,140
  2,229
  2,322
  2,420
  2,524
  2,633
  2,748
  2,869
  2,996
  3,130
  3,271
  3,420
  3,576
  3,740
  3,913
  4,094
  4,285
Retained Cash Flow (-), $m
  -83
  -99
  -113
  -126
  -140
  -154
  -167
  -181
  -195
  -209
  -224
  -239
  -255
  -271
  -287
  -304
  -322
  -341
  -360
  -380
  -401
  -423
  -446
  -470
  -495
  -521
  -548
  -577
  -607
  -638
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  1,308
  1,335
  1,364
  1,396
  1,432
  1,471
  1,513
  1,558
  1,607
  1,660
  1,678
  1,738
  1,802
  1,870
  1,941
  2,017
  2,098
  2,183
  2,273
  2,368
  2,468
  2,573
  2,685
  2,802
  2,925
  3,055
  3,192
  3,336
  3,487
  3,646
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  1,254
  1,223
  1,187
  1,150
  1,110
  1,067
  1,022
  974
  923
  870
  797
  742
  685
  628
  570
  513
  456
  402
  350
  301
  255
  214
  176
  143
  114
  89
  69
  52
  38
  27
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Lear Corporation (Lear) is a supplier to the global automotive industry. The Company is engaged in supplying seating, electrical distribution systems and electronic modules, as well as related sub-systems, components and software, to automotive manufacturers. The Company's segments include Seating and E-Systems. The Company serves the automotive and light truck market. The Seating segment consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as the design, development, engineering and manufacture of all seat components, including seat covers and surface materials, such as leather and fabric, seat structures and mechanisms, seat foam and headrests. The E-Systems segment consists of the design, development, engineering, manufacture, assembly and supply of electrical distribution systems, electronic modules and related components and software for light vehicles across the world.

FINANCIAL RATIOS  of  Lear Corporation (LEA)

Valuation Ratios
P/E Ratio 10.1
Price to Sales 0.5
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow 9
Growth Rates
Sales Growth Rate 1.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.6%
Cap. Spend. - 3 Yr. Gr. Rate 2.8%
Financial Strength
Quick Ratio 28
Current Ratio 0.1
LT Debt to Equity 62.1%
Total Debt to Equity 63.5%
Interest Coverage 16
Management Effectiveness
Return On Assets 10.8%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 19.7%
Ret/ On T. Cap. - 3 Yr. Avg. 16.9%
Return On Equity 32.6%
Return On Equity - 3 Yr. Avg. 26.8%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 11.6%
Gross Margin - 3 Yr. Avg. 10.3%
EBITDA Margin 9.7%
EBITDA Margin - 3 Yr. Avg. 8.1%
Operating Margin 7.7%
Oper. Margin - 3 Yr. Avg. 6.2%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 5.3%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 27.7%
Eff/ Tax Rate - 3 Yr. Avg. 23.6%
Payout Ratio 9.1%

LEA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LEA stock intrinsic value calculation we used $21149 million for the last fiscal year's total revenue generated by Lear Corporation. The default revenue input number comes from 0001 income statement of Lear Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our LEA stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for LEA is calculated based on our internal credit rating of Lear Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Lear Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of LEA stock the variable cost ratio is equal to 92.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for LEA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Lear Corporation.

Corporate tax rate of 27% is the nominal tax rate for Lear Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the LEA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for LEA are equal to 15.3%.

Life of production assets of 8.1 years is the average useful life of capital assets used in Lear Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for LEA is equal to 1.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $4200.7 million for Lear Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 62.526 million for Lear Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Lear Corporation at the current share price and the inputted number of shares is $8.9 billion.

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