Jefferies Starts Goodyear Tire & Rubber (GT) at Buy
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Jefferies initiates coverage on Goodyear Tire & Rubber (NASDAQ: GT) with a Buy rating and a price target of $36.50.
Analyst Ashik Kurian commented, "We like Goodyear’s focused strategy on targeting growth in the premium segment, along with recently evident capital discipline. We view Goodyear’s returns to be less volatile going forward compared to past and see returns improving driven by volume and mix tailwinds. With a demonstrated intent to improve its mix and limit its exposure to the low end of the market, we see Goodyear better placed versus peers with regards to limiting potential headwind from net pricing as raw material prices recover. While its potentially a source of Goodyear’s current valuation discount, we quite like it’s equity leverage. Tires, in general, is a highly cash generative business due to their relatively higher profitability and lower level of capex and R&D. Thus in a ‘soft cycle’, Goodyear should continue to generate strong cash flow and de-lever its balance sheet; driving equity upside even with limited rerating of the EV. We forecast above average EBIT growth of 6% over the next 5 years for Goodyear and a 10% EPS CAGR (excluding impact from any share buybacks). Despite being a consensual buy, Goodyear presents one of the most compelling investment cases with our sector.Goodyear currently trades at c.20% discount to its global tire peer group, partly due to its historical performance and in part due to its high leverage. Based on our forecasts of improving returns, strong free cash flow and Goodyears’ attractive capital allocation strategy; we see scope for the shares to rerate versus peers."
Shares of Goodyear Tire & Rubber closed at $30.75 yesterday.
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