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Strong Sell on Titan International


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Zacks Investment Research downgraded Titan International Inc. (TWI - Snapshot Report) to a Zacks Rank #5 (Strong Sell) on June 12, 2013.

Why the Downgrade?

Things don’t seem to be working in favor of Titan International as its share price has gone down by 13% in the last 7 days. The company on June 7 communicated a possible downward revision in guidance that was provided at the end of 2012.

Management of Titan International anticipates a weak demand for tires in the quarters ahead, especially from its customers in the farm and construction as well as mining industries. Customers are likely to reduce their inventory of tires that they build over time at discounted prices. Moreover, fall in raw material costs has lowered the selling prices of the company’s products.

This has resulted in a downward revision in earnings estimate for Titan international. In the last 7 days, the Zacks Consensus Estimate has gone down by 12.1% to $1.89 for 2013 and 13.1% to $2.38 for 2014.
In addition, financial results for the first quarter 2013 reported on Apr 24, 2013 were not very impressive. Adjusted net earnings plummeted 42% year over year despite a 25% increase in sales. Expenses, including cost of sales, SG&A, R&D and royalty, in the quarter increased 31% year over year and represented 92% of total revenue versus 87.3% in the year-ago quarter.

Earnings per share came in at 36 cents as compared with the year-ago earnings of 78 cents and the Zacks Consensus Estimate of 43 cents.  

Fall of 18.5% for year 2013 and a decline of 15.3% for 2014 have been recorded in the Zacks Consensus Estimate in the last 60 days.

Decreasing earnings estimates for Titan International together with three out of four quarters of negative earnings surprise, with an average of -26.1%, raises skepticism over the company’s performance in the quarters ahead. We currently have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of -4.8% for 2013 and -5.0% for 2014.

Other Stocks to Consider

Titan International is a well recognized manufacturer of wheel and tires for the agricultural, earthmoving/construction and consumer markets. The company currently has a $963 million market capitalization.

Other stocks to watch out for in the industry are Kubota Corp. with a Zacks Rank #1 (Strong Buy) while CNH Global NV and Alamo Group, Inc. (ALG - Snapshot Report), carry a Zacks Rank #2 (Buy).

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