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Bull of the Day: Cooper Tire & Rubber (CTB)

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Headquartered in Findlay, OH, Cooper Tire & Rubber (CTB) manufactures and markets passenger cars and light truck tires and related products. They have over 9,100 employees and 52 manufacturing, distribution, retail stores, technical centers and office facilities located in more than one dozen countries around the world.
Their operations are divided into four business segments— North America, Latin America, Europe and Asia. Based on sales volume, they are the twelfth largest tire manufacturer in the world and the fifth largest in the US.
Solid Quarterly Results

The company reported earnings of $1.27 per share for Q2, significantly ahead of the Zacks Consensus Estimate of $1.07. Earnings were also much higher than $1.03 per share reported in the year-ago quarter.

Revenues however fell slightly short of the Zacks Consensus Estimate due to the adverse impact of price and mix, and currency headwinds.

The balance sheet remained strong with more than $400 million in cash and cash equivalents as of June 30, 2016 and low leverage.

Returning Cash to Shareholders

On August 3, the company announced its 178th consecutive quarterly dividend. They have also been returning cash to shareholders via buybacks.  They completed $372 million in share repurchases from August 2014 through August 3, 2016 (17% of outstanding) and an additional $152 million of repurchase authorization remains through December 31, 2017.

Rising Estimates

Analysts have been raising their estimates for the company in the past few weeks. Zacks Consensus Estimates for the current and next year are now $4.29 per share and $3.95 per share, up from $4.08 and $3.81 respectively, before Q2 results.

As you can see from the following chart, share price has slightly lagged behind rising estimates and could pick up speed after Q3 results on October 31, if they beat.

Positive Industry Outlook

“Rubber-Tires” industry is currently ranked #1 out of 265 Zacks industries. According to the company, global tire demand is expected to grow at a compounded annual growth rate of approximately 4.1%, led by growth in emerging markets. They have been expanding their presence in fast growing emerging markets, China in particular, to tap this opportunity.

The Bottom Line

The company has been shifting their mix towards premium segments of the US markets as also raising their brand awareness. They have also increased their focus on Original Equipment Manufacturers (OEM) programs in fast growing Chinese market. These initiatives will continue to drive growth going forward.

In addition to a top Zacks Stock Rank, they have Zacks Style Scores of “A” for Value and “B” for Growth. The stock is trading at an attractive valuation of 8.4 times forward earnings.

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