Goodyear Tire & Rubber is on a Roll
The price of Goodyear Tire & Rubber Company (GT) shares was down 4.3% to close at $16.77 on June 18. Also, the company has lost 13.6% over the past month.
The Goodyear Tire & Rubber Company is one of the largest tire manufacturing companies in the World. Though the company generates sales on a global basis, North America is its largest market.
Despite recent losses, the company has gained almost 63% over the past six months and 96% over the past year. Currently, the company has a $4.7 billion market capitalization. A dash of recent price changes reflect the growing interest of investors in the stock. (See Goodyear stock chart on TipRanks)
Goodyear Launches New Intelligent Tire Solutions
On June 16, the company launched sensor-enabled tires named Goodyear SightLine for cargo van fleets. These tires will enable van owners to get information about tire breakdowns in advance, helping them to take appropriate measures for enhanced safety and a more cost-efficient mobility.
For now, the product is available in North America and Europe. Over time, the product's availability will be expanded to Goodyear’s original equipment customers and emerging fleet and mobility providers.
Moreover, Goodyear plans to install tire intelligence in all new products by the year 2027. The technology is also expected to provide feedback on road conditions, enabling connected, autonomous mobility.
Cooper Buyout Strengthens Position in Tire Market
On June 7, Goodyear completed the impending acquisition of Cooper Tire & Rubber Company. The deal closed earlier than the expected date, which would have been during the second half of 2021.
The deal marks the collaboration of two of the biggest American tire companies.
The merged entity will bank on Goodyear’s dominance in original equipment and premium replacement tires, and combine it with Cooper’s strengths in the light truck and SUV segments. Therefore, the merger will provide a more complete product to customers.
On the financial front, the buyout is likely to boost Goodyear’s earnings within a year, thereby solidifying the company’s balance-sheet position.
Earnings Details
On April 30, the company reported impressive first quarter numbers.
The company posted Q1 adjusted earnings of $0.43 per share and beat Street estimates of $0.09. A loss of $0.60 per share was reported in the same quarter last year. Net revenues jumped 15% year-over-year to $3.5 billion and surpassed analysts’ expectations of $3.4 billion. The increase was attributable to greater volume and favorable currency translation.
However, the company has a huge amount of debt on its balance sheet, which remains a matter of concern. As of March 31, 2021, long-term debt and finance leases amounted to $5.3 billion, up from $5.2 million on March 31, 2020. Additionally, the company’s cash flow from operating activities was negative $282 million.
Analysts’ Opinion
Overall, the stock has a Hold consensus rating based on 1 Buy, 3 Holds, and 1 Sell. The GT average analyst price target of $18.75 implies 11.8% upside potential from the current levels.
On June 15, KeyBanc analyst James Picariello reiterated the stock’s price target of $23 (37.2% upside potential) and a Buy rating.
Picariello expects the early close of the Cooper deal to expand Goodyear Tire’s profit numbers, given that the deal is immediately accretive in 2021 and 2022.
The analyst further stated "Our Sell-Out Tracker continues to trend well above 2019 levels (May +15% vs. 2019; YTD +17%), which we believe serves as a key barometer in support of GT's tire production likely remaining at/above 2019 plant volumes through year-end. We reiterate our view of a favorable setup for tire producers amid the replacement channel's currently low inventory levels coupled with intact, strong demand, and are now raising our 2021 industry sell-in forecast to +12% growth (from +7%)."
On May 4, Deutsche Bank analyst Emmanuel Rosner reiterated a Hold rating on the stock and increased the price target to $21 from $19. This implies 25.2% upside potential to current price levels.
Rosner believes the company's Q1 earnings is in the "early stages of large earnings recovery, after years of underperformance." However, Rosner remains cautious about the company’s execution risk and potential revenue de-synergies related to the Cooper acquisition.
TipRanks' Metric
TipRanks data shows that financial blogger opinions are 100% Bullish on GT, compared to a sector average of 71%. That clearly reflects the growing investor interest in GT stocks.
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Disclosure: Shalu Saraf held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
