Goodyear Tire & Rubber Stock Becomes a Strong Bargain

Goodyear Tire and Rubber Company (NYSE: GT), one of the world’s largest tire manufacturers, has been hit hard as vehicles stay off the roads as part of stay-at-home orders during the pandemic. The stock fell as low as $4.09 in March 2020. The reopening triggered a spike in auto sales and commuter traffic driven by pent-up demand, as the spread of vaccines allowed economies and businesses to reopen. Ridesharing companies Uber (NYSE: UBER) and LYFT (NASDAQ: LYFT) have also been major philanthropists at the reopening, as passengers who choose not to drive or use public transport are back on the road. Supply chain disruptions, logistical challenges and rising cost inflation were also alleviated by strong pent-up demand. With inflation continuing to be a troubling headwind, higher interest rates and a strong US dollar were bigger issues as they began to affect the top and bottom lines after a record 2021.

Strong Dollar Hits Again

The strong US dollar impact reduced Goodyear Tires’ net sales from 15% in constant currency terms to 8% in the third quarter of 2022. It also made forecasting for European sales difficult, especially when there was the potential for a recession. Shares fell (-53%) in 2022 and lost more than half of their value from a peak of $24.89 in November 2021. Goodyear shares were bubbling at these levels, but with share prices approaching single digits, it makes for a compelling value proposition. Returns to 2020 price levels. Since then, Goodyear completed its acquisition of rival Cooper Tire & Rubber in June 2021, surpassing Michelin (OTCMKTS: MGDDY) to become the largest tire manufacturer in the US. Basically buying GT stock is like buying two (supplementary) companies for the price of one.

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Cooper Tire and Rubber Synergies

The merger of Goodyear and Cooper has been lucrative and synergetic in many ways due to its complementary business models, products, distribution channels and organizational structures. It peaked Goodyear’s market share in the US and doubled its presence in China. It added wider distribution to Cooper in Goodyear’s 2,500 stores. Complementary brands complete the Goodyear OEM and premium tire portfolio range, with the mid-range strength of the Cooper brand specializing in the light truck and SUV segments. Up to $165 million in operating cost savings are expected within two years of purchase. Cost synergies are derived from mostly overlapping corporate functions and operating efficiencies, as well as creating at least $450 million in net present value using Goodyear’s US tax features that reduce cash tax payments. Goodyear not only sells tires, but also auto services that cover oil changes, brakes, battery and tire repair, replacement and adjustment services. These value-added services can now be sold to existing Cooper Tire customers. The combination scales up to support investments in new mobility and fleet solutions.

Bigtime Support Test $10

The weekly GT chart shows the dual peak of $24 in January 2022 and the sharp decline since then. The stock dropped from $22.66 to $15.69 in February 2022, hitting its biggest volume in two years as Q1 gains exposed the effect of headwinds. The sell-off caused the weekly 50-period exponential moving average (EMA) to break the 50-period weekly MA at $18.39. The weekly 50-period EMA is currently a bearish resistance at $12.26, followed by the 50-period SMA at $14.64. Stocks initially bounced off the $10.00 support level from late September to October and higher rising lows hit $12.95, heading towards the third-quarter earnings report, but once the stock tumbled strongly to retest the $10.00 support in the earnings release, the stocks bounced off the $10.00 support level. triggered the bear flag. Sound. The $10.00 level is a strong psychological support to hold. The bulls need a bounce off the low trigger of the $11.59 weekly market structure to reverse the downtrend. If the $10.00 support level is broken, then the valuation becomes more compelling at each pullback support level, starting with the lows of $8.55 and $7.29, then the pandemic lows of $5.73 and $4.09.

Slowdown

On October 31, 2022, Goodyear announced its fiscal 2022 third quarter results for the quarter ended September 2022. The company reported earnings per share (EPS) of $0.40. To miss. Revenues increased 7.6% year-over-year (YoY) to $5.31 billion, missing analyst estimates of $5.34 billion. The company achieved a record price/mix of $742 million, outstripping higher raw material costs. Net sales rose 8%, but would have approached 15% had it not been adjusted for currency. The company was able to offset the increased input costs with 15% price increases. Tire volumes have dropped (-3%) and CEO Richard Kramer expects the harsh environment to continue into 2023. With cost inflation peaking, raw material costs are expected to increase by $500 million in Q4 and energy prices are expected to rise. Some of the raw costs that increased in the third quarter are being pushed into the fourth quarter. The company expects annual cost increases of $300 million to $400 million in the first half of 2023, mostly in the first quarter of 2023.

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