Case Study : Goodyear Tire & Rubber Company Essay

2098 Words Dec 28th, 2016 9 Pages
Goodyear Tire & Rubber Company
Recommendation
I recommend buying Goodyear (GT), a global tire manufacturer, which currently trades at $31.50 per share. I believe the stock is undervalued by 40%-50%, with a price target of $47 per share. The company has a 4 to 5 year runway for substantial return potential due to: (1) robust auto sales which translate into replacement tires within 4 to 5 years; (2) reduced risk within the company; (3) strengthening business operations and (4) increasing dividends and share repurchase programs.
Company Overview Goodyear is the third largest global manufacturer of tires, with a market share of 9.2%. The industry is highly concentrated among Bridgestone, Michelin, and Goodyear, with a combined market share of approximately 40%. The company maintains 49 manufacturing facilities in 22 countries and its major tire brands include: Goodyear, Dunlop, Kelly in addition to smaller brand names all of which are sold worldwide (49% North America, 32% EMEA, 12% Asia, 7% Latin America). Goodyear generates approximately 70% of its revenue from the replacement tire market, and 30% from the original equipment (OE) market.
Investment Thesis
Multiyear Runway for Volume, Revenue, and Margin Growth
In the past 3 to 4 years, the auto industry has enjoyed strong sales. Though this may seem like buying the stock at a peak, replacement tire sales typically lag new auto sales and Goodyear will not benefit from the auto market for 4 to 5 years after new sales take…

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