Cooper Tire Cut to Neutral

On Feb 26, we downgraded automotive products manufacturer, Cooper Tire & Rubber Company (CTB - Analyst Report) to Neutral factoring in the increasingly competitive landscape.

Why the Downgrade?

Despite the company’s good performance in the fourth quarter of 2012, we remain concerned about the rising competition and sluggish nature of the tire industry.

Cooper Tire competes with Bridgestone Corporation in Japan, Goodyear Tire & Rubber Company (GT - Analyst Report) in the U.S. and Groupe Michelin in France. The peers occupy a significant market position, where Cooper Tire occupies only 15% market share in light vehicle replacement tires in the U.S.

The company also faces challenges from the low-cost producers in Asia and South America. In addition, sluggish nature of tire industry will lead to higher exports, particularly to the emerging markets, thereby hurting its profit.

Cooper Tire reported nearly a three-fold year over year increase in earnings to $1.15 per share in the fourth quarter of 2012, beating the Zacks Consensus Estimate by as much as 30 cents per share.

Revenues edged up 2% to $1.1 billion in the quarter. The increase was attributable to higher volumes in the truck-bus radial tire segment, new product launches and, to some extent, volume growth generated from the acquisition of tire manufacturing assets in Serbia.

However, profit for full-year 2012 declined 13.2% year over year to $3.49 per share.

The company focuses in developing and improving high-performance products to meet the rising market demand. It is also working constantly to increase its capacity and has outsourced the production of tires to manufacturers in low-cost countries such as China, India and Mexico.

Other Stocks to Consider

Few stocks that are performing well in the industry where Cooper Tire operates are Continental AG (CTTAY) and Oshkosh Corporation (OSK - Snapshot Report). Both of them carry a Zacks Rank #1 (Strong Buy).