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BB&T maintains 'Buy' rating on Cooper stock, but...

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BB&T Capital Markets is maintaining its "Buy (1)" rating on Cooper Tire & Rubber Co.'s stock, with a caveat.

According to Tony Cristello, senior vice president of Equity Research, the rating is based on internal initiatives already underway at Cooper. However, he does not see "much in the way of a near-term catalyst until (Cooper) receives some relief from escalating commodity costs."

Continued increases in raw material costs, a decline in North American unit shipments, and increased charges for product liability claims are the key drivers behind the expected weakness in Cooper's first-quarter results, says Cristello. (See "Cooper expects 'modest earnings' for first quarter," April 25, 2008.)

He says replacement tire demand in North America was down in the first three months of 2008. Industry shipments were down just over 4% -- 12% in March alone. Cooper is one of several manufacturers that have suffered slowdowns.

"Unfortunately, Cooper has a high fixed cost base, and with weak sales coupled with rising input costs, gross margins were materially pressured."

For the quarter, BB&T is lowering its earnings per share (EPS) estimate from 18 cents to one cent, 'which reflects roughly an even earnings adjustment for the sales/margin and product liability claim impact."

BB&T also is lowering its expectations for the first half, the second time it has done so since Cooper reported very solid fourth-quarter 2007 results, and presented its five-year strategic plan to the investment community on Feb. 28, 2008. BB&T is reducing its 2008 and 2009 EPS estimates as well.

"In fairness, our entire automotive aftermarket coverage group remains pressured as consumers struggle to balance limited budgets that are only exacerbated by the steadily climbing price of gasoline," adds Cristello.

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