Cooper Tire & Rubber Co.
) is a replacement tire maker that became a Zacks #1 Rank (Strong
Buy) on October 10. There is currently a rumor that the company is
in the process of being acquired, but earnings estimates have been
trending higher for several months. With a price-to-sales (P/S)
ratio of just 0.3, this stock is a true value pick.
Robust Growth in Second Quarter
On August 9, Cooper Tire & Rubber reported a more than
four-fold increase in profits to $51.7 million for the second
quarter, compared to $11.5 million a year ago. This was the
company's 12th straight quarter of profitability. Earnings per
share of 82 cents surpassed the Zacks Consensus Estimate by 64%.
The improvement in profits was mainly due to lower raw material
costs. Other factors helping bottom line growth included higher
sales volumes, improved manufacturing efficiencies and lower
product liability costs.
Revenues increased 15% to $1.1 billion, driven by higher sales
volumes in the North American and International operations. Sales
in its North American Tire division grew 16% while that in the
International Tire unit went up 6%.
Cooper Tire & Rubber believes product innovations, cost
reduction measures, falling raw material costs and profitable
investments will boost its earnings, despite the headwinds in the
The company will report its third-quarter results on November 2.
The Zacks Consensus Estimate is currently at 87 cents per share, or
about 11.5% higher than 3 months ago.
Earnings Momentum Advancing
The Zacks Consensus Estimate for 2012 is up nearly 14% in the past
three months to $2.56 per share, including a rise of 1.6% in the
past 7 days. As for 2013, the Zacks Consensus Estimate of $2.99 is
up almost 13% in 90 days and 4.5% in the past week. The estimates
for 2012 and 2013 reflect year-over-year growth of 113.5% and
Shares of Cooper Tire & Rubber have been rising since October
last year. It reached a 52-week high of $23.40 on September 14,
2012. The expanding gaps between the 2011, 2012, 2013 and 2014
estimate lines should entice investors.
In addition, Cooper Tire & Rubber has strong value
characteristics. Apart from a low P/S, it is currently trading at a
forward P/E multiple of 7.3 and a P/B multiple of 1.5. (A P/S ratio
lower than 1.0, a P/E below 15.0 and a P/B ratio under 3.0
generally indicate value.) Moreover, the company has a 1-year ROE
of 18.2%, which is in line with the peer group average. It also has
a PEG ratio of 0.96, which is less than one and indicates that the
stock is reasonably valued given the expected growth.
Founded in 1913, Cooper Tire & Rubber Co. manufactures tires
and related products for passenger vehicles and light trucks. The
$1.2 billion company has more than 60 manufacturing, sales,
distribution, technical and design facilities located in 10
countries across the globe. It is the ninth largest tire company in
the world and the fourth largest in the U.S.
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