Lear Falls 12% in 6 Months: Here’s Why You Should Sell the Stock

Lear Corp. LEA shares have plunged 12.4% over the past six months, underperforming the Zacks Auto, Tires and Trucks sector’s appreciation of 16.1% and the Zacks Automotive – Original Equipment industry’s return of 2%.

Lear’s subpar performance can be attributed to significant cuts in EV production, delayed program launches, declining volumes on key platforms and disruptions from ongoing restructuring efforts.

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Lear’s growth and profitability have been impacted by multiple headwinds. One of the biggest challenges is the significant cuts to EV production volumes by Original Equipment Manufacturers (OEMs) due to an industry-wide slowdown and demand uncertainty. Delayed EV launches and canceled programs have further affected its growth prospects. Slower sourcing activity for new programs in 2024 has led to a backlog reduction for 2025, limiting LEA’s top-line growth for the year.

Declining volumes on key Lear platforms in China, including the Buick Regal, BMW X3 and iX3, and Volvo XC40, have been further weighing on the company’s performance.

To address these issues, Lear has undertaken restructuring efforts, closing or selling 13 facilities and reducing its total facilities by 4%. LEA plans to close or sell five more facilities, primarily in Europe, due to excess capacity. However, these restricting initiatives are expected to come with associated costs and disruptions, impacting short-term profitability.

Lear projects its full-year 2025 net sales in the band of $21.88-$22.88 billion, which at its midpoint indicates a decrease of 4% compared to 2024. Excluding the impact of foreign exchange, commodities, acquisitions and divestitures, LEA expects revenues to be down 2%.

Core operating earnings are anticipated to be in the range of $915 million to $1.175 billion, implying a year-over-year decrease of 5% at the midpoint.

Operating cash flow is projected to be between $1.06 billion and $1.26 billion compared with $1.12 billion as of Dec. 31, 2024. Lear anticipates FCF in the band of $430-$630 million compared with $561.4 million at the end of 2024. Capital spending is expected to be approximately $625 million. In 2024, the total capital spending was $558.7 million.

In 2025, Lear expects approximately $230 million of net new business compared to the $800 million expected at the start of 2024. The reduction is primarily due to lower production assumptions for various vehicles, including the RAM Charger, Volvo EX90, Polestar 3 and several GM EVs, as well as the launch delay of the RAM REV.

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