The Goodyear Tire & Rubber Company GT, one of the largest tire manufacturing companies in the world, is poised to gain from the acquisition of Cooper Tire and Goodyear Forward. However, declining sales volume, high debt and rising capex remain headwinds.
Let’s see why you should hold on to this Zacks Rank #3 (Hold) stock for now.
The acquisition of Cooper Tire has strengthened Goodyear's leadership position in the U.S. tire industry and expanded its foothold in other North American markets. The complementary product offerings, scale expansion and value addition from both production and distribution standpoints are boosting the firm’s top line.
Goodyear's transformative initiative dubbed as Goodyear Forward bodes well. The plan, designed to optimize the company's portfolio, enhance margins and reduce leverage, aims to unlock significant value for shareholders. With a goal to raise more than $2 billion from portfolio optimization, Goodyear is actively exploring strategic alternatives for its chemical and Dunlop tire businesses. It sold its Off-the-Road business in July 2024 to align with its Goodyear Forward transformation strategy. The company expects savings of $450 million in 2024 from the Goodyear Forward program. By the end of 2025, it expects the program to deliver annualized cost reductions of $1.5 billion.
Encouragingly, Goodyear remains focused on developing tires that will help it transform its portfolio to include more energy-efficient and eco-friendly vehicles. The company regularly rolls out innovative products and services to boost sales and remain competitive in the market. It recently announced plans to expand and modernize its Napanee, Ontario plant to serve the growing and diverse demands of the EV and all-terrain vehicle markets. The launch of Goodyear ElectricDrive GT, a best-in-class fit-for-purpose tire, especially for EVs, is set to buoy prospects. Collaborations with companies like Plus, AutoFleet, Formant, ZF and Gatik demonstrate Goodyear’s efforts to cater to the changing dynamics of the auto industry.
While the capital venture fund — Goodyear Ventures — intends to advance future mobility solutions over the next decade, AndGo is designed to be a seamless vehicle servicing platform that integrates predictive software with a trusted service network. The addition of TuSimple, a global autonomous trucking technology company, to Goodyear Ventures augurs well. Goodyear Ventures also partnered with AmpUp, which will help GT provide consumers and fleets with solutions that unlock the full potential of EVs.
In the fourth quarter of 2024, Goodyear expects to sell about 4% fewer units worldwide year over year. This drop is because stores and distributors already have too much inventory on hand and actual sales to customers, especially in the United States, are weaker than expected. Lower sales volume can hit the company’s top-line growth. Also, Goodyear’s long-term debt-to-capital ratio of 0.60 is higher than the auto sector’s 0.34. Elevated leverage restricts the firm's financial flexibility.
Technology change requires Goodyear to make substantial amounts of investment and capital spending in order to develop technologically advanced offerings. High spending on account of the upgrades for more complex tire designs and brownfield expansions are likely to clip cash flows.
Some better-ranked stocks in the auto space are Dorman Products, Inc. DORM, Geely Automobile Holdings Limited GELYY and Blue Bird Corporation BLBD, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for DORM’s 2024 sales and earnings suggests year-over-year growth of 3.66% and 51.98%, respectively. EPS estimates for 2024 and 2025 have improved 75 cents and 88 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for GELYY’s 2024 sales and earnings suggests year-over-year growth of 51.88% and 216.67%, respectively. EPS estimates for 2024 and have improved by a penny and 12 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for BLBD’s fiscal 2025 sales and earnings suggests year-over-year growth of 10.97% and 12.14%, respectively. EPS estimates for fiscal 2025 have improved 18 cents in the past 60 days.
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