Cooper Tire & Rubber Co. hosted its 2014 Investor Day on Thursday, May 15, in New York City. According to industry analyst Nick Mitchell, the company delivered a solid framework for generating sales.
"The company's first formal meeting since the termination of the merger agreement with Apollo Tyres was well attended, and included a thorough update of its strategic plan and benchmark goals that were originally introduced at the last analyst day in 2008," says Mitchell, senior vice president of research for Northcoast Research Partners LLC.
"In fact, management provided investors with the framework it expects to follow to generate sales in the range of $5 billion to $6 billion by the end of the decade, while consistently delivering operating margin performance in the range of 8% to 10% along the way."
The main drivers of the projected increase in both sales and operating margins include:
* recovering the volume lost in 2013;
* expanding output capacity via a series of cost efficient capital projects;
* enhancing sourcing capabilities;
* improving manufacturing efficiencies, which includes making automation investments in the U.S. plants;
* reducing the exposure to the private label wholesale channel;
* targeting fast growing and/or highly profitable segments of the global tire market, which includes increasing the penetration in the premium segments in the U.S.; and
* leveraging low-cost capacity in Mexico and Serbia to expand distribution capabilities into new markets in Eastern Europe and Latin America.
Mitchell says he left the presentation feeling more confident in Cooper's leadership. He believes the leadership team is "working aggressively to get the company back on track following a challenging 2013 that was plagued by numerous headwinds."
Following the investor day, Northcoast Research reiterated its "Buy" rating on Cooper's stock.
"In light of the fact that demand trends in the replacement tire market in North America continue to recover off of cycle lows, and Cooper Tire is cycling easy comparisons created by the onslaught of issues that plagued 2013, we think the risk/reward ratio associated with the shares remains very attractive," he adds.