On Jan 3, we maintained our Neutral recommendation on
Cooper Tire & Rubber Co.
) due to its poor performance in the second quarter of 2013 and
termination of the company's merger agreement with Apollo Tyres.
However, we are optimistic about the benefits from the
high-performance products and the company's focus on improving
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Why the Reiteration?
On Aug 8, 2013, Cooper Tire posted second-quarter 2013 earnings
of 55 cents per share, down 33% from 82 cents in the prior-year
quarter. The results lagged the Zacks Consensus Estimate of 89
Net earnings also declined significantly to $35 million from $52
million in the second quarter of 2012. Revenues fell 16.5% year
over year to $884 million in the quarter, missing the Zacks
Consensus Estimate of $986 million.
Following the release of second-quarter results, the Zacks
Consensus Estimate for 2013 fell 6.7% to $2.50 per share. The
Zacks Consensus Estimate for 2014 declined 1.7% to $2.87 per
share. Hence, Cooper Tire now carries a Zacks Rank #3 (Hold).
Notably, some of its competitors in the tire and rubber industry
The Goodyear Tire & Rubber Co.
We expect Cooper Tire to benefit from its high-performance
products which cater to the current market demand. The company is
also poised to increase profitability by focusing on its product
mix. Cooper Tire's latest products include WM-SA2, Weather-Master
Snow and Discoverer M+S Sport, which are useful in winter. The
company also launched the Mastercraft premium off-road tire.
Cooper Tire will expectedly gain from its efforts to improve
business operations. The company is optimally positioned due to
its quality brands, loyal customer base, and worldwide network of
manufacturing facilities, efficient workforce and advanced
However, we are concerned about the termination of the merger
agreement with Apollo Tyres Ltd. The acquisition would have
resulted in benefits of operating scale, sourcing benefits,
technology, product optimization and manufacturing improvements.
These would have bolstered earnings before interest, taxes,
depreciation and amortization (EBITDA) by $80-120 million per
annum after 3 years.
Other Stocks That Warrant a Look
A better-placed stock in the industry in which Cooper Tire
), with a Zacks Rank #1 (Strong Buy).