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Ludwig says the future is bright for Cooper

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If you think Cooper Tire & Rubber Co. had a good first quarter, just wait for the year to unwind.

So says tire industry analyst Saul Ludwig, who maintains his "Buy" rating on Cooper's stock.

"We recently had another round of calls with tire dealers and the story is unchanged -- they all want more tires than Cooper is able to give them, he says. "With Cooper adding capability to produce 10% more tires in 2011, fill rates are improving.

"The pace of tire price hikes has increased while the rate of raw material increase slows, so the negative gap between price-mix and raws should narrow in 2Q '11 from the $30 million shortfall in 1Q '11."

Ludwig, a managing director at Northcoast Research Holdings LLC, says the dealer calls also revealed that unit retail tire sales have been down year to year for the last six weeks following the dramatic surge in gasoline prices to more than $4 per gallon.

"Nevertheless, we still believe that Cooper is on its way to another year of record results."

In 2008, Cooper lost $220 million. In 2010, the company recorded net income of $140 million (on record net sales of $3.4 billion).

"What a difference two years make!" says Ludwig. "Today, Cooper is posting record earnings, and its balance sheet is so strong that it has been able to buy out all or part of the minority interest in three tire joint venture factories.

"It is the only U.S. tire manufacturer producing value tires which are much in demand as the consumer is increasingly pinched. Additionally, dealers give Cooper and its entire management team high marks for product quality, profitability to the dealer and overall service levels."

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