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Growth & Income

Estimates have been rising for Cooper Tire & Rubber Company (CTB - Analyst Report) after the company delivered better than expected fourth quarter results.

It is a Zacks #2 Rank (Buy).

Based on current consensus estimates, analysts project 53% EPS growth this year and 28% growth next year. On top of this, the company pays a dividend that yields a solid 2.5%.

Valuation is attractive too, with shares trading at less than 9x forward earnings.

Company Description

Cooper manufactures and sell tires around the globe. It is based in Findlay, Ohio and has a market cap of $1.0 billion.

Solid Fourth Quarter Results

The company delivered better than expected fourth quarter results on February 27. Earnings per share came in at 51 cents, crushing the Zacks Consensus Estimate of 39 cents.

Net sales rose 14% to $1.045 billion, ahead of the Zacks Consensus Estimate of $1.010 billion. This was driven by 16% growth in the North American Tire division and 10% growth in the International Tire division.

Rising input costs did squeeze the gross profit margin a bit, as it declined from 12.2% to 10.9% of net sales. But this was somewhat offset by lower selling, general and administrative expenses. Overall, operating income increased a solid 8%.

Estimates Rising

We have seen a nice bump in 2012 estimates from analysts following the strong quarter. This has sent the stock to a Zacks #2 Rank (Buy).

The 2012 Zacks Consensus Estimate is now $1.83, representing 53% growth over 2011 EPS. The 2013 consensus estimate is currently $2.36, corresponding with 28% growth.

Looking at the recent analyst reports, many expect Cooper's recent sales momentum to continue throughout 2012, and that the company will be able to offset rising raw material costs going forward. And this should drive solid double-digit EPS growth over the next couple of years.

Steady Dividend

In addition to solid growth, the company pays a dividend that yields a solid 2.5%. It has paid the same 10.5 cent per share quarterly dividend since 1998.

Reasonable Valuation

Valuation looks attractive with shares trading at just 8.8x 12-month forward earnings, a discount to the industry median of 13.4x, and to its 10-year median of 12.7x.

Its price to tangible book ratio of 2.2 is also below the industry multiple of 2.6.

The Bottom Line

With rising estimates, solid growth prospects, a steady 2.5% dividend yield and attractive valuation, Cooper Tire offers a lot to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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