LEA stock closed up in after-hours trading on December 13, 2019.
In after-hours on December 13, 2019, the news hit that LEA stock will replace Oasis Petroleum (OAS) in the S&P MidCap 400.
Essentially, the S&P MidCap 400 is a list. Once a quarter, stocks are added or deleted as rules change, companies grow (or shrink), and merge. The simplest criterion for joining the S&P MidCap 400 is size measured by marketcap but there are other requirements too.
When the S&P committee announces the addition of a new company to the S&P MidCap 400, that stock frequently rises 4% to 7%, at least temporarily, as the funds tracking the index add that company to their portfolios.
Traders often ask me if I think well connected institutional traders and insiders front-run the committee’s announcement, so I will address that question proactively right now.
There are procedures and controls in place to prevent front-running the committee’s decision. Until about 2:22 PM (Pacific time) on December 13, 2019, the only people who knew that LEA stock would be added to the S&P MidCap 400 were the members of the Index Committee. They draft the announcement and proofread it. All the emails and documents used by the Index Committee are encrypted. Email encryption today is much better than it was a few years ago. Encryption technologies used by the S&P committee include one or more of the following: PKI, S/MIME, X.509 certificates, 3DES, AES-256, and 1024- bit RSA keys (with MDS and SHA-1 encryption algorithms).
Inside Standard and Poor’s office, the section where index managers and committee members work is separate from the rest of the office and only people sitting in that section can get in as the doors are locked. Around 2:15 PM (Pacific time), after market close on December 13, 2019, the announcement of who was in or out of the S&P MidCap 400 was sent encrypted to the web-posting team with instructions to publish it at 2:22 PM and send it to various news services at the same time.
The SEC tracks front-running of the S&P committee’s release. Trading on inside information is illegal. The SEC has automated tracking in place and if it is done, they will catch you, and when you get caught, you’ll go to jail.
On October 25, 2019, Lear Corporation (NYSE: LEA), a global automotive technology leader in seating and electrical and electronic systems, reported results for the third quarter 2019. Lear reported Q3 adj. EPS of $3.54 versus the consensus estimate of $3.14. The company reported Q3 revenue of $4.83B versus the consensus estimate of $4.76B.
“In the third quarter, we continued to face a challenging operating environment, with global industry production down 3% year over year,” said Ray Scott, Lear’s President and Chief Executive Officer. “Despite these headwinds, we delivered solid quarterly financial results. We recognize that industry conditions remain challenging, but we continue to focus on driving operational efficiencies, investing for long-term profitable growth, and delivering superior shareholder returns.”
On October 16, 2019, Guggenheim analyst Ali Faghri initiated coverage on the Auto Suppliers with a cautious sector view. The automotive sector is facing increasing cyclical pressures globally, says Faghri, who forecasts flat to negative global industry production volumes through 2021. This creates a challenging operating environment for auto suppliers, the analyst tells investors in a research note. Faghri believes Europe represents the most significant risk to the group’s outlook, pointing out that his work suggests “macro headwinds and disruptive emissions regulations will significantly impact vehicle demand in the region over the next few years.” The analyst initiated coverage of Aptiv (APTV) and Gentex (GNTX) with Buy ratings. For Aptiv, he sees high single-digit organic growth through 2022 driven by active safety and electric vehicle content gains. For Gentex, the analyst sees upside to 2019 consensus due to stronger gross margins and visibility for continued above market growth. Faghri rounded out his coverage with Neutral ratings on BorgWarner (BWA), Delphi Technologies (DLPH), Lear (LEA), Visteon (VC) and Veoneer (VNE).