Thursday, Wolfe Research adjusted its stance on Goodyear Tire & Rubber (NASDAQ:GT), moving from an Outperform to a Peer Perform rating.
The firm expressed concerns regarding the company's soft volumes and market share erosion, noting that Goodyear's global shipments have declined by an average of approximately 3% per year since 2019. This trend corresponds to a loss of about 150 basis points in market share, which has resulted in an estimated $700 million reduction in earnings over the same period.
Goodyear has been facing challenges in securing a defendable market share, especially within their core segment of premium tires larger than 17 inches in developed markets. Wolfe Research pointed out the difficulty in achieving this goal due to the increasing number of imported tires entering Western markets.
Despite these issues, the firm acknowledged that Goodyear has performed well in other areas of their GT Forward plan, including the sale of one of their three targeted assets and restructuring savings that have so far exceeded expectations.
However, Wolfe Research remains cautious, not expecting the company's volume or market share challenges to improve soon. The firm's projections include a further 30 basis points of global share loss in 2025, in line with the last five-year average.
After adjusting management's cost savings targets slightly downward, Wolfe Research has arrived at a $2.1 billion EBITDA estimate for 2025. Based on a 4.5x EV/EBITDA multiple, which is at the lower end of the historical range, this suggests minimal stock price upside to the $10 range, a potential increase of about 10%.
The revised rating reflects a less optimistic view of the risk-reward balance for Goodyear, with Wolfe Research adjusting its rating to align with its tempered expectations for the tire manufacturer's financial performance.
In other recent news, Goodyear Tire & Rubber Company reported substantial margin growth in Q2 2024, reaching $339 million with a margin of 7.4%, nearly tripling the margin from the same period last year.
The company also highlighted a considerable year-over-year earnings growth, with an increase of over $1 in reported earnings per share (EPS) and $0.53 in adjusted EPS. Amid industry challenges, Goodyear announced the sale of its off-the-road (OTR) business, aligning with its transformation strategy.
The company's focus is on targeting profitable volume segments and executing cost-reduction efforts as part of the Goodyear Forward Plan. Despite the unsupportive industry environment, Goodyear's America's business unit saw significant gains, with segment operating income (SOI) up nearly $140 million from last year.
However, sales totaled $4.6 billion, down 6% from the previous year, driven by lower volume and unfavorable price mix.
Goodyear anticipates industry challenges will persist through the second half of the year, but remains committed to achieving 10% SOI margins by the end of next year. These are among the recent developments for the company.
InvestingPro Insights
As Goodyear Tire & Rubber (NASDAQ:GT) navigates market share and volume challenges, real-time data from InvestingPro provides additional context to Wolfe Research's recent rating adjustment. The company's significant debt burden is a critical factor, as it can impact financial flexibility and future growth potential. This is compounded by the fact that Goodyear has not been profitable over the last twelve months, which underscores the importance of the company's GT Forward plan in achieving a turnaround.
InvestingPro data shows a market capitalization of $2.32 billion, reflecting the size of the company within the automobile components industry, where it remains a prominent player despite recent setbacks. The negative P/E ratio of -6.63 further highlights the company's profitability challenges. Meanwhile, the price/book ratio stands at 0.49, which could suggest that the stock is undervalued relative to its assets, especially considering the InvestingPro fair value estimate of $9.24, which is higher than the previous close price of $8.14.
InvestingPro Tips indicate that analysts are expecting net income growth this year, which could signal a potential recovery. However, it's important to note that three analysts have revised their earnings downwards for the upcoming period, adding a note of caution for investors. For those interested in exploring further insights, additional tips are available on InvestingPro, including detailed analyst predictions and comprehensive financial analysis.
With Goodyear's stock price movements being quite volatile and trading near its 52-week low, investors may want to consider these insights alongside the broader industry trends and company-specific developments. Those seeking to delve deeper into Goodyear's financials and future prospects can find a wealth of information, including numerous additional InvestingPro Tips, at https://www.investing.com/pro/GT.
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