Critical Survey: Lear (LEA) & Meritor (MTOR)

Lear (NYSE: LEA) and Meritor (NYSE:MTOR) are both mid-cap auto/tires/trucks companies, but which is the superior business? We will contrast the two companies based on the strength of their dividends, institutional ownership, valuation, earnings, analyst recommendations, risk and profitability.

Valuation and Earnings

This table compares Lear and Meritor’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Lear $18.56 billion 0.64 $975.10 million $16.04 10.97
Meritor $3.35 billion 0.62 $324.00 million $3.55 6.60

Lear has higher revenue and earnings than Meritor. Meritor is trading at a lower price-to-earnings ratio than Lear, indicating that it is currently the more affordable of the two stocks.

Dividends

Lear pays an annual dividend of $2.00 per share and has a dividend yield of 1.1%. Meritor does not pay a dividend. Lear pays out 12.5% of its earnings in the form of a dividend. Meritor has raised its dividend for 6 consecutive years.

Analyst Ratings

This is a summary of recent recommendations for Lear and Meritor, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Lear 2 5 7 0 2.36
Meritor 0 4 4 0 2.50

Lear presently has a consensus target price of $170.93, suggesting a potential downside of 2.84%. Meritor has a consensus target price of $26.44, suggesting a potential upside of 12.79%. Given Meritor’s stronger consensus rating and higher probable upside, analysts plainly believe Meritor is more favorable than Lear.

Profitability

This table compares Lear and Meritor’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Lear 5.79% 31.79% 10.56%
Meritor 9.68% -1,152.54% 6.52%

Institutional & Insider Ownership

91.8% of Lear shares are owned by institutional investors. Comparatively, 96.2% of Meritor shares are owned by institutional investors. 0.5% of Lear shares are owned by insiders. Comparatively, 2.9% of Meritor shares are owned by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock is poised for long-term growth.

Volatility & Risk

Lear has a beta of 1.43, suggesting that its stock price is 43% more volatile than the S&P 500. Comparatively, Meritor has a beta of 2.28, suggesting that its stock price is 128% more volatile than the S&P 500.

Summary

Meritor beats Lear on 9 of the 17 factors compared between the two stocks.

Lear Company Profile

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.

Meritor Company Profile

Meritor, Inc. is a supplier of a range of integrated systems, modules and components to original equipment manufacturers (OEMs) and the aftermarket for the commercial vehicle, transportation and industrial sectors. The Company’s segments include Commercial Truck & Industrial and Aftermarket & Trailer. The Commercial Truck & Industrial segment supplies drivetrain systems and components, including axles, drivelines and braking and suspension systems, for medium- and heavy-duty trucks, off-highway, military, construction, bus and coach, fire and emergency and other applications in North America, South America, Europe and Asia Pacific. The Commercial Truck & Industrial segment also includes the Company’s aftermarket businesses in Asia Pacific and South America. The Aftermarket & Trailer segment supplies axles, brakes, drivelines, suspension parts and other replacement and remanufactured parts to commercial vehicle aftermarket customers in North America and Europe.

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