Lear's Trading for a Discount Amidst Uncertainty

Lear Corporation is a leading automotive manufacturer with operations in 40 countries. The company designs and produces seats, electrical systems, and electronic modules for car makers. Lear has two reportable segments: Seating and E-Systems. The company's financial performance is expected to be impacted by various factors, including the COVID-19 pandemic and ongoing trade tensions. Investors are advised to exercise caution and consider multiple factors before making a decision to buy or sell shares.

Lear Corporation, a leading automotive manufacturer with operations in nearly 40 countries, has recently expanded its partnership with Palantir Technologies Inc. [1]. Under the new agreement, Lear will broaden its use of Palantir Foundry and Palantir's Warp Speed manufacturing operating system and Artificial Intelligence Platform (AIP) across its global manufacturing footprint.

Palantir's platforms connect functions across quality, supply chain, procurement, manufacturing, finance, and design, and more than 11,000 Lear employees leverage Palantir's technology to drive efficiency and innovation. Palantir Foundry and AIP have played an important role in Lear's Innovative, Digital, Engineered and Automated (IDEA by Lear) program, which unifies Lear's transformation initiatives. Lear's implementation of IDEA has resulted in more than $30 million in savings during the first half of 2025, with benefits expected to compound over the remainder of the year and beyond.

Lear first partnered with Palantir in 2023 to digitize its manufacturing operations, and since then, the companies have expanded the scope and scale of their collaboration. This strategic partnership aims to enhance Lear's operational efficiency and innovation capabilities, positioning the company for sustained growth in the face of challenges such as the COVID-19 pandemic and ongoing trade tensions.

Palantir Technologies has recently made headlines with its strategic collaborations, notably partnering with Lumen Technologies and expanding its alliance with Lear Corporation. These initiatives aim to enhance business operations using advanced AI technologies [2]. Over the last quarter, PLTR experienced a 29% price increase, likely bolstered by these influential partnerships. Despite the broader tech market seeing a modest rise, driven by favorable developments like potential Fed rate cuts, Palantir's focused efforts in strengthening market positioning and innovative approaches through client engagements could have added weight to its stock performance, countering any broader market trends.

Over the last three years, Palantir Technologies has delivered a substantial total return of nearly 2000%, showcasing its strong performance in the market. This growth far outpaces the broader US market's annual return of 18.1% during the past year. For comparison, the US Software industry's one-year performance was 28%, indicating that Palantir's recent progress aligns well with industry trends. Palantir's recent collaborations and Q2 2025 earnings report, reflecting significant revenue ($1 billion) and net income ($326.73 million), signal positive impacts on revenue and earnings forecasts. The expanded partnerships with firms like Lear Corporation and Lumen Technologies suggest robust future prospects.

Despite the company's current share price of $154.90 exceeding the consensus price target of $151.74, the upward movement reflects bullish sentiment amid its advancements and strengthened ties. This context underscores potential revenue growth and enhanced earnings capacity, driven by ongoing corporate initiatives and market alignment.

Lear Corporation currently pays a quarterly dividend of $0.77 per share, or $3.08 annually, giving it a forward dividend yield of 2.8%. The company's financial performance has been impacted by the COVID-19 pandemic, leading to fluctuations in its gross profit margin and return on invested capital. However, Lear's strategic partnership with Palantir Technologies could help mitigate these challenges and drive future growth.

Lear's stock has struggled over the last few years, driving down its total return to 25.6% in the last ten years, and a resulting CAGR of just 2.3%. The company's revenue per share has grown at a solid 6.6% since 2015, but this growth has not been linear. The stock is very cyclical, as seen from the chart below, where multiple times the stock would've returned more than 100% over the past decade (or less). However, the stock has struggled over the last few years, driving down its total return to 25.6% in the last ten years, and a resulting CAGR of just 2.3%.

The market had a very negative reaction to Lear's Q2 earnings call, with shares tanking more than 8% following the release. However, since the call, shares of Lear have recovered, and are up about 1.5%. The Q3 earnings for Lear are expected to be released on Friday, October 24th, and analysts are expecting non-GAAP EPS of $2.70 per share, with GAAP EPS of $2.06, on revenue of $5.55B. Interestingly, there are 11 analysts that cover Lear, and over the past 90 days, six analysts have revised their EPS estimates higher, while the remaining five have lowered their estimates.

Lear's current market cap is just shy of $6B, and the company employs close to 175,000 people worldwide. The stock is trading for a decent-sized discount to its fair value, with a current price of about $110, and a fair price estimated at $152 per share. The long-term expected rate of return of Lear Corporation is a robust 17.43%, with the components of that estimate being a forward dividend yield of 2.80%, a return to fair value factor of 5.06%, and an expected earnings growth rate of 9.57%.

References:
[1] https://www.marketscreener.com/news/palantir-technologies-inc-and-lear-corporation-announce-five-year-partnership-expansion-to-accelera-ce7d59d8db8ef324
[2] https://finance.yahoo.com/news/palantir-technologies-pltr-expands-collaboration-173420618.html