On Feb 26, we downgraded automotive products manufacturer,
Cooper Tire & Rubber Company
) to Neutral factoring in the increasingly competitive landscape.
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Why the Downgrade?
Despite the company's good performance in the fourth quarter of
2012, we remain concerned about the rising competition and
sluggish nature of the tire industry.
Cooper Tire competes with Bridgestone Corporation in Japan,
Goodyear Tire & Rubber Company
) in the U.S. and Groupe Michelin in France. The peers occupy a
significant market position, where Cooper Tire occupies only 15%
market share in light vehicle replacement tires in the U.S.
The company also faces challenges from the low-cost producers in
Asia and South America. In addition, sluggish nature of tire
industry will lead to higher exports, particularly to the
emerging markets, thereby hurting its profit.
Cooper Tire reported nearly a three-fold year over year increase
in earnings to $1.15 per share in the fourth quarter of 2012,
beating the Zacks Consensus Estimate by as much as 30 cents per
Revenues edged up 2% to $1.1 billion in the quarter. The increase
was attributable to higher volumes in the truck-bus radial tire
segment, new product launches and, to some extent, volume growth
generated from the acquisition of tire manufacturing assets in
However, profit for full-year 2012 declined 13.2% year over year
to $3.49 per share.
The company focuses in developing and improving high-performance
products to meet the rising market demand. It is also working
constantly to increase its capacity and has outsourced the
production of tires to manufacturers in low-cost countries such
as China, India and Mexico.
Other Stocks to Consider
Few stocks that are performing well in the industry where Cooper
Tire operates are
). Both of them carry a Zacks Rank #1 (Strong Buy).