Longbow Downgrades Goodyear On Price, Mix Headwinds

Goodyear Tire & Rubber Co GT struck a new 52-week low Monday after reporting a major earnings miss Friday and suffering an analyst downgrade.

The Rating

Longbow Research analysts Anthony Deem and Brian Bollenbacher downgraded Goodyear to Underperform with a $14 price target.

The Thesis

Longbow anticipates swelling supply to create a price headwind, particularly as North American consumer capacity outpaces shipment in compound annual growth.

“We believe supply/demand imbalance in the Americas will continue to limit GT's pricing power over the next several years,” Deem and Bollenbacher wrote in a note.

By their estimates, the industry would need to record 4-percent CAGR through 2021 to maintain the current supply-demand ratio. With little faith in that achievement, they forecast an unfavorable balance for the next two years.

“With weak volume prospects, FX headwinds and no benefit from net cost savings, GT earnings growth is highly predicated upon an improving price/mix versus raw material spread,” Deem and Bollenbacher wrote.

The analysts estimate a $64 million headwind from pricing and mix as Goodyear’s “high-value added” supply constraints linger through 2019.

Altogether, Longbow anticipates less than $1.2 billion in annual segment operating income resulting in earnings per share below $2.

Price Action

At time of publication, shares traded at $18.62. The stock had hit an intra-day low of $17.88 per share.

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