Lear initiated a $380 million restructuring drive to streamline the company's operations through cost reduction, capacity utilization, and closure of some plants. This plan is expected to result in 5-7% headcount reduction and 20 facility closures. Overall 40% of production is expected to be in low-cost countries. The firm is also focusing on the Seating and Electronics businesses, where Lear has very high market shares. On June 13, Lear announced that it has entered into agreements to acquire a 75% share of the automotive fabric business of New Trend Group Co., Ltd. in China.

In its financial outlook for 2008, Lear revised its sales outlook downward to approximately $15.3 billion from $15.5 billion previously. It lowered income before interest, other expenses, income taxes, restructuring costs and other special items outlook to a range of $600-$640 million. In addition, Lear increased its estimated restructuring investment for 2008 to about $125 million. The revised outlook for full-year 2008 free cash flow is approximately $200 million.

Hold Paper-Maker Sappi, Ltd.

Sappi Limited's (SPP) earnings recovery has primarily been led by improving global demand, strong pulp prices, and cost reduction efforts. The industry-wide move to reduce North American and European fine coated paper capacity is taking off the excess supply from the market.

As a global leader in fine coated paper, though, Sappi could shut-in additional capacity but has not laid out any specific plans yet. We find this disappointing and as a result, we expect a slower price recovery. Moreover, in the near-term, continued high raw material and energy prices and a difficult pricing environment in Europe might put pressure on Fine Paper segment's margins. Hence, we reiterate our Hold recommendation on the stock.

The management though has stated that more than 10% of North American coated fine paper capacity has closed. In Europe also, significant capacity closures have taken place and additional closures are in progress.

The recovery in the Japanese economy and the robust global advertising spending should increase demand for fine paper, which has shown the fastest growth rate in any paper segment and this is anticipated to continue. The combination of improving global demand and reduced capacity should drive higher operating rates and industry-wide pricing power.

Given these factors, Sappi is experiencing improvement in coated fine paper prices during second quarter of FY08. Further, amid continued strong demand for forest products, Sappi is expanding chemical cellulose production in South Africa.

We have valued Sappi using the P/E valuation metric and forward earnings. Historically, Sappi has traded between 11x and 15x forward earnings. We believe industry pricing condition to improve further with rise in operating rates. At its current price of $13.45 per ADR, the Sappi stock price reflects the improvement in industry fundamentals. We think the stock has priced in the expected earnings improvement. Our target price is $14.25 per ADR.

Sonic Innovations Seeks Growth

To boost its anemic growth, Sonic Innovations, Inc. (SNCI) has once again adopted an acquisition strategy. The emphasis in research and development has resulted in new product launches that are helping to drive sales by double digits. The company also expects to find additional growth from improvements to its distribution.

The company finally gave up on its diagnostic business Tympany and the referral concept and instead has expanded its distribution relationships. The sale of the auditory testing division has helped Sonic clear a path to meaningful earnings growth. The company is also in the process of cutting operating costs from consolidating European operations. These cost reduction efforts are expected to help the company reach its EPS guidance.

At its current price of $2.95 per share, SNCI is trading at 0.6x our 2008 revenue estimate of $140 million, which is at a discount to the average group multiple of roughly 1.1x. The weak economy continues to negatively impact North American sales.

However, we believe the focus on profitability and expected improvements this year and stronger expected growth thereafter should drive the stock to trade at a premium to the group.