On Jun 11, we upgraded
Goodyear Tire & Rubber Company
) to Neutral based on its focus on the emerging markets of Latin
America, Eastern Europe and Asia and improved earnings in the
first quarter of 2013. However, we are concerned about the
decline in revenues and decrease in tire unit volumes.
Why the Upgrade?
On Apr 26, Goodyear reported a 32% rise in earnings to $111
million or 45 cents per share (excluding special items) in the
first quarter of 2013 from $84 million or 34 cents in the same
quarter of 2012. The quarter's earnings per share exceeded the
Zacks Consensus Estimate by 15 cents.
The improvement in earnings was attributable to higher earnings
in the company's North America, Latin American and Asia Pacific
operations, while Europe, Middle East and African operations
lagged due to weak industry demand. Revenues in the quarter slid
11% to $4.9 billion, missing the Zacks Consensus Estimate of $5.1
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 increased 2.4% to $2.12 per share.
The Zacks Consensus Estimate for 2014 dropped 0.8% to $2.48 per
share. Currently, Goodyear retains a Zacks Rank #3 (Hold).
Goodyear, one of the world's largest tire manufacturers, will
benefit from the implementation of three-point plan. This
strategy focuses on improving margin level, which was adversely
affected by the continued weakness in Europe. This will also
ensure long-term competitiveness of the company in the region.
In addition, Goodyear emphasizes on increasing its market share
together with expansion in emerging markets and productivity
improvements across the region over the next three
However, we are concerned about the sluggish industry demand,
which puts increasing pricing pressure from OEMs on the company.
This will adversely affect the profit margins of the company as
it sells nearly 30% of its tires to OEMs.
Other Stocks to Consider
Some other stocks that are performing well in the broader
industry where Goodyear operates include
STRATTEC Security Corporation
Magna International Inc.
). All these companies carry a Zacks Rank #1 (Strong Buy).
GOODYEAR TIRE (GT): Free Stock Analysis
MAGNA INTL CL A (MGA): Free Stock Analysis
STRATTEC SEC CP (STRT): Free Stock Analysis
VISTEON CORP (VC): Free Stock Analysis Report
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