Cooper Tire Starts to Get a Grip

Cooper Tire & Rubber Co. (CTB - Analyst Report) specializes in the manufacture and marketing of automotive products. The company’s strategy of outsourcing production to low-cost countries and other cost-reduction measures are some of the positive factors associated with the stock. However, a challenging North American auto environment, elevated raw material costs and strong competition lead us to rate the stock a Hold with a six-month target price of $11.

The North American Tire Operation segment is concentrated on developing high-performance product offerings to satisfy current market demand. These new products will improve Cooper Tire’s profitability by improving product mix. The company is working constantly to increase its capacity in order to meet the rising demand for replacement tires in the high-performance and ultra-high performance categories.

In 2008, Cooper Tire anticipates receiving approximately 2.5 million tires from the Cooper-Kenda facility with the total first phase capacity of 6.5 million units. The acquisition of Cooper Chengshan (Shandong) Passenger Tire Company and Cooper Chengshan (Shandong) Tire Company is expected to contribute $500 million in annualized net sales.

Cooper Tire is planning an expansion of over 2 million tires at Cooper Chengshan Tire. These remote sourcing strategies will not only reduce production costs but will also increase the company’s domestic production capacity, as more than 1 million tires of the company in the U.S. are sourced from China.

The company plans to launch a new premium highway-tread tire for SUVs in 2008. Further, Cooper Tire also aims to reduce costs by $70 million in 2008. The company recently announced price increases effective July 1, 2008 by up to 8% in North America.

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