On Thursday, Morgan Stanley began coverage of Goodyear Tire & Rubber Co. (NASDAQ:GT) with an Equalweight rating, establishing a price target of $14.00 for the company's shares. The firm's assessment is based on the company's current valuations, which are consistent with those of its Tier 1 peers, ranging between seven to eight times the expected EV/EBIT for the fiscal year 2025.
The analyst pointed out that Goodyear's earnings before interest and taxes (EBIT) estimates are highly contingent on the company's ability to implement self-help measures. According to the firm, the potential for the stock to appreciate in 2024 is likely tied to Goodyear's ability to reduce its leverage.
Morgan Stanley sees a balanced risk-reward scenario for Goodyear at this time. The firm's stance reflects a viewpoint that Goodyear's stock currently does not exhibit the qualities that investors typically seek in top-tier tire stocks, particularly at this stage in the economic cycle.
The Equalweight rating indicates that Morgan Stanley's outlook on Goodyear Tire & Rubber is neutral, suggesting that the stock is expected to perform in line with the average return of the stocks the analyst's firm covers over the next 12 to 18 months.
The announcement sets a specific financial benchmark for Goodyear, with the $14.00 price target reflecting Morgan Stanley's expectations for the stock's performance, based on the company's valuation and market dynamics.
In other recent news, Goodyear Tire & Rubber Company reported a robust first quarter in 2024 with segment operating income reaching $247 million, nearly double from the previous year. This performance was primarily driven by recovery in the Americas and growth in the Asia Pacific region. The company's net debt also saw a significant reduction, decreasing by over $550 million compared to the previous year.
Goodyear is currently implementing its Goodyear Forward plan, which targets $1.3 billion in earnings improvement and a 10% segment operating income margin by the end of next year. Despite a decrease in unit volume in America and EMEA, the company expects flat global unit volume and higher unabsorbed fixed costs in Q2. Furthermore, Goodyear anticipates positive price/mix in the second half of the year.
In terms of future expectations, Goodyear projects steady volume and pricing in the second half of the year, with anticipated growth in the Americas and restocking in EMEA. The Asia-Pacific region is also expected to continue its growth trajectory.
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