J.P Morgan Comments On Goodyear Tire & Rubber Following Earnings, Raises PT

According to a recent note, J.P Morgan says the good news is that industry pricing remains solid, and end-markets, particular the high-margin commercial truck segment, are finally seeing a powerful recovery, reminding us that GT remains a powerful high-beta cyclical upswing play. The bad news is that this past downturn laid bare GT's extremely high NA breakeven point, suggesting investors should be wary of multiple expansion arguments. J.P Morgan tweaks up Goodyear Tire & Rubber's GT 2012 EPS, and reduce 2011 notably on raw materials. JPM's estimates and target price do not reflect potential future equity dilution, though it thinks it would be prudent for long-term investors to contemplate a ~$250-500MM equity raise eventually. To reflect the impact of higher natural rubber prices, J.P Morgan lowers its 2011e EPS to $0.50 with a quarterly cadence of $0.35 in 1Q, $0.04 in 2Q, -$0.05 in 3Q and $0.16 in 4Q. However, 2012e EPS is revised up to $2.25. JPM's estimates assume global volume growth of 4% in each 2011 and 2012 and a $374MM negative price/mix versus raws spread in 2011. J.P Morgan has a $17 PT and OW rating on GT GT closed Friday at $14.30