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Lowered EPS estimates barely dent optimistic forecast for Goodyear

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KeyBanc Capital Markets is lowering its earnings per share (EPS)estimates for Goodyear Tire & Rubber Co. in the fourth quarter and in 2008. However, KeyBanc is reiterating its "Buy (2)" Rating because Goodyear "continues to top expectations."

According to analyst Saul Ludwig, managing director of KeyBanc, the EPS for 2007 will remain at $1.40. But the following estimates have changed:

* 4Q, 2007: from 55 cents to 44 cents (versus a strike-impacted loss of $1.85 in the fourth quarter of 2006).

"Favorable price/mix vs. raw materials plus substantial foreign exchange gains will likely continue to provide a signficant tailwind for Goodyear. That is an important reason why we expect a strong fourth quarter, even as additional progress from cost savings is mostly offset by general inflation.

"Also, Goodyear will incur higher transitional expenses associated with phasing down production at its Tyler, Texas, plant."

* 2008: from $3.35 to $3.20, reflecting an estimated six-month delay in formalizing the VEBA trust, which will reduce the company's legacy costs significantly.

Still, Ludwig says the plusses in 2008 will greatly outweigh the minuses.

"Goodyear's strategy is clearly to sell higher end tires while retreating from low-end products, but it appears to us that it is losing share in some areas in addition to its voluntary withdrawal from certain segments of the market," he adds.

Goodyear's stock on the New York Stock Exchange closed at $27.25 per share on Wednesday, Nov. 15, 2007.

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