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Ludwig: KeyBanc maintains Buy (2) rating on Goodyear's stock

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Although it has lowered its 12-month price target, KeyBanc Capital Markets Inc. is maintaining its Buy (2) rating on Goodyear Tire & Rubber Co.'s stock.

At the close of Tuesday, Sept. 4, Goodyear's stock on the New York Stock Exchange was selling for $27.56 a share.

According to Managing Director Saul Ludwig, KeyBanc lowered its price target from $48 to $42 because the company "used a more conservative multiple based on recent market conditions." However, its full-year earnings per share estimates for 2007 and 2008 remain optimistic.

"With additional quantitative data made available, we believe we can better support our 2007 and 2008 estimates of $1.40 and $3.35, respectively."

In making the 2008 estimate, Ludwig says the most significant year-over-year improvements total $440 million. Those savings are expected to come from the following:

1. VEBA trust, $120 million;

2. reduced footprint, $70 million;

3. lower interest, $100 million;

4. international improvement, $100 million; and

5. favorable pricing vs. raw material costs, $50 million.

"Inflationary pressures throughout the organization would eat into some of those savings but we believe the net impact would still be substantial."

For 3Q07, Ludwig estimates that volume in Goodyear's North American Tire business unit will decline 6%, "yet segment operating income should improve to $70 million vs. $19 million in 3Q06." Revenue is expected to increase by about 2% on better pricing, he adds.

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