Lear Corp (LEA) is implementing safety measures at its operations in Mexico after suffering the worst factory-related coronavirus outbreak in the Americas. However, the U.S. auto parts maker still faces a battle to win back workers’ trust; 20 employees from Lear’s Rio Bravo plant have died thus far of Covid-19-related complications. Rio Bravo is 1 of 41 plants that Lear operates in Mexico.
Mexico has one of the world’s worst coronavirus outbreaks, but has come under U.S. government and industry pressure to reopen quickly in order to protect supply chains, which last year fueled $614.5 billion in trade.
Following one-way arrows along hallways, eating at cafeteria tables with tall dividers, and stamping shoes on a mat soaked in disinfectant are among the new measures being adopted. Also, signs in the plant remind employees to wash hands regularly and report symptoms..
The entrance screening alone could take up to an hour for a single shift: Workers must snake through a single-file line, show identification, have their temperatures taken, and say whether they have shown any symptoms or been in contact with anyone with the coronavirus.
Lear’s efforts to protect workers amid the ongoing outbreak do not come cheaply and will affect productivity, said Sergio Corral, the Rio Bravo plant manager.
Corral said he expects productivity to drop 30% to 40%; a commitment to testing all 3,000 staff, if they request it, could cost $450,000; and the company has vowed to shutter factories for deep cleaning every time it finds a confirmed infection.
Only about 15% of staffers will work at first, with others gradually joining, so that bosses can carefully supervise.
Emmanuel Rosner of Deutsche Bank recently rated Lear a Hold with a $114 price target. Rosner noted that although the business could improve margins going ahead, driving Lear’s overall margin expansion, the process is likely to be gradual. He added that he thought margin improvement is unlikely at the immediate future. “We expect that until LEA is able to show margin expansion, investors will be sidelined,” he wrote.
Lear stock dropped with the onset of Covid-19, but has since recovered to exactly where it was 3 months ago. Lear has a Moderate Buy rating consensus from Wall Street analysts. Lear currently trades at $110.49, so the average price target of $107 leaves 2.55% 12-month downside potential. (See Lear stock analysis on TipRanks.)
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