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Earnings estimates for Cooper Tire & Rubber Co. (CTB - Analyst Report) have been climbing since its strong first-quarter results, announced on May 2. The replacement tire maker has a solid dividend yield of 2.4% and is expected to deliver healthy double-digit earnings growth this year and beyond. The Zacks #2 Rank (Buy) stock also has a decent valuation.

A Strong First Quarter

Cooper Tire & Rubber’s first-quarter 2012 results included a 38% year-over-year surge in profit to $21.6 million or 34 cents per share, representing the 11th consecutive quarter of profitability. The result surpassed the Zacks Consensus Estimate by a couple of cents, marking the fourth positive surprise over the last seven quarters.

Revenues climbed 9% year-over-year to $984 million on the heels of improved pricing and sales from the core North American operation. The positives neutralized the impact of higher raw material costs. The company saw an 8% growth in its North American Tire division while its International Tire unit grew 11%. The company continues to witness strong performances from its Roadmaster brand, manifested by higher shipments.

Cooper believes stabilizing raw material costs, flexible manufacturing operations, profitable investments and competitive labor agreements will help it improve results moving ahead despite of the headwinds faced by the industry.

Estimates Climbing

The Zacks Consensus Estimates for CTB show healthy year-over-year growth potential. The company’s efforts to stem raw material inflation through improved product and price mix, better product management, capacity enhancement and cost containment initiatives should help it sustain the earnings momentum.

For both 2012 and 2013, two out of 6 estimates have been revised higher in the last 30 days. The Zacks Consensus Estimate for 2012 has climbed 5% and 12% over the last 30 days and 60 days, respectively, to $2.25 a share, indicating an estimated annualized growth of roughly 88%. For 2013, the Zacks Consensus Estimate rose by 4% and 6%, respectively, over the same timeframes to $2.65 per share, representing a projected year over year growth of nearly 18%.

Stable Dividend

Cooper last raised its quarterly dividend (by a penny) in September 1998 to 10.5 cents per share and has been consistently paying the same amount ever since then. The company recently declared its 161st consecutive quarterly dividend, affirming a solid yield of 2.4%.

Decent Valuation

Cooper’s valuation looks reasonable with its shares trading at a forward P/E of 7.46x, on par with the peer group average. The price-to-book of 1.43x is below the peer group average of 1.48x. Moreover, Cooper has a 1-year ROE of 13.7%, in line with its peer group average.

Chart Looks Promising

The price and consensus chart demonstrates that the stock has traced the growth in earnings estimates of late after rallying above the earnings estimate lines from mid-2009 to mid-2011. As the earnings estimates moves higher, the stock is likely to follow suit.

The Bottom Line

Cooper is strongly placed to leverage the growing demand for replacement tires in the high performance and ultra-high performance categories. With a solid growth trajectory, rising earnings estimates, healthy dividend yield and reasonable valuation, the stock has plenty to interest investors seeking growth and income.

Founded in 1913, Cooper Tire & Rubber Co. makes tires and related products for passenger vehicles and light trucks. The company, which has a market cap of $1.05 billion, has more than 60 manufacturing, sales, distribution, technical and design facilities located in 10 countries across the globe. Cooper is the ninth largest tire company in the world and is also one of the 350 large companies in America.

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