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Analyst Blog

On Jun 16, 2014, we issued an updated research report on The Goodyear Tire & Rubber Company (GT - Analyst Report).

The company reported positive earnings surprises in 3 of the trailing 4 quarters. Goodyear reported an impressive 33.3% rise in earnings per share to 56 cents in the first quarter of 2014 from 42 cents a year ago (all excluding special items). However, earnings missed the Zacks Consensus Estimate of 60 cents. Net income escalated to $156 million from $118 million in the first quarter of 2013.

Revenues in the quarter fell 8.2% year over year to $4.5 billion, also missing the Zacks Consensus Estimate of $4.75 billion. The decrease in revenues can be attributed to a $202 million impact of lower sales in other tire-related businesses, specifically due to a decline in third-party chemical sales in North America.

Moreover, Goodyear’s capital deployment strategy, innovative product launches and efforts to improve margins are yielding results. However, weakness in Latin America, rising long-term debt and capital expenditure and falling cash balance are reasons for concern.

Goodyear currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for the company’s 2014 earnings stands at $2.87 per share, up 9.41% from 2013.

Goodyear projects that the segment operating income will grow 10–15% annually till 2016. It also aims to attain positive cash flow (excluding pension pre-funding) till 2016. Moreover, the company expects a 2–3% increase in unit volumes in 2014.

Key Picks from the Sector

Some better-ranked automobile stocks worth considering include Fox Factory Holding Corp (FOXF - Snapshot Report), Gentherm Incorporated (THRM - Snapshot Report) and Tower International, Inc. (TOWR - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).

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