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Goodyear Tire Dips to 52-Week Low: What's Behind the Fall?

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Shares of The Goodyear Tire & Rubber Company (GT - Free Report) slipped to a 52-week low of $18.78 during the trading session on Dec 26 and closed the day at $20.23. Year to date, the stock has lost 37.4% compared with the industry’s 35.2% decline.



With a market capitalization of $4.5 billion, the Akron, OH-based company is one of the largest tire manufacturers in the world. Apart from producing tires in 48 facilities across 22 countries, the company also manufactures and markets rubber-related chemicals for various applications.

In the third quarter of 2018, Goodyear’s earnings missed the Zacks Consensus Estimate due to rising raw material costs that included carbon black, synthetic rubber and other materials. The cost pressure is likely to stay volatile over the next year as well. Per Moody’s, high material costs along with a flat demand for aftermarket tires are anticipated to strain Goodyear’s performance.

The Goodyear Tire & Rubber Company Price and Consensus

 

 

Augmented sales of passenger cars and commercial vehicles drive the automotive tires market, geographically led by China in the Asia Pacific region. However, recent weakness in demand in China’s automotive market is a concern for tire manufacturers. Further, in Europe, the tire manufacturer is expected to witness similar volume headwinds due to emission testing issues on vehicles. Rising costs and a flat global demand will dent operating income. In fact, soft market conditions in China and economic volatility in Brazil along with unfavorable currency translation as well as surging raw material costs have compelled Goodyear to lower segment operating income projection to roughly $1.3 billion from the previous estimates of $1.45-$1.5 billion.

Additionally, the company faces intense competition within the industry. Apart from competitive product pricing, Goodyear is focused on expanding global presence to attract more customers and maintain its position. Last week, the company announced the opening of a production hub at Slovenia. The facility will produce premium-range tires that are becoming more prominent in the EMEA region. Improved pricing and product mix are expected to offset rising costs and flat volume.

Goodyear currently has a VGM Score of D and Zacks Rank # 4 (Sell). In the past sixty days, the Zacks Consensus Estimate for the company’s fourth-quarter and 2018 earnings have moved down 37% and 12.8%, respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks to Consider

A few better-ranked stocks in the auto space are Fox Factory Holding Corporation (FOXF - Free Report) , Allison Transmission Holdings, Inc (ALSN - Free Report) , and CarGurus, Inc (CARG - Free Report) . Fox Factory and Allison Transmission currently sport a Zacks Rank #1 while CarGurus carries a Zacks Rank #2 (Buy).

Fox Factory has expected long-term growth rate of 5%. Shares of the company have rallied 39% year to date.

Allison Transmission has an expected long-term growth rate of 10%. Shares of the company have increased 7.3% in the past six months.

CarGurus has expected long-term growth rate of 5%. Year to date, shares of the company have gained 10.3%.

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