Cooper receives "Buy" rating from BB&T
BB&T Capital Markets has given Cooper Tire & Rubber Co.'s stock a "Buy (1)" rating.
Senior Research Analyst Tony Cristello has taken a contrarian view of the market with the "Buy" rating on Cooper. He projects a 12-month price target of $17. (Cooper's stock was selling for $11.52 a share at the close of the New York Stock Exchange on Friday, May 26.)
His reasoning is as follows:
1. The company's transition is showing early signs of success. "Cooper has realized overall fill rates of 92% to 93% for two consecutive quarters (Q4 2005, 1Q 2006) and it now appears that customer confidence has returned. We believe that if fill rates can remain in the 90% to 95% range, particularly in house brands, its transition should prove successful and lead to increased brand equity, strengthened customer relationships and, more importantly, improved profitability."
2. Cooper has the right tire mix. Building a greater inventory of high performance, ultra-high performance and light truck tires has been the focus for Cooper since 2004 given the industry's migration, according to Cristello. "We think that 2006 should finally yield results to support the idea that its transition strategy is working."
3. Cooper's China exposure should play a large role in thecoming years. "If the venture with Chengshan is successful, we would expect Cooper to gain share in China, a much faster growing market than North America, as well as deliver much more meaningful profits to Cooper over time."
4. The rate of raw material price increases appears to be slowing, "which we believe would bode well for Cooper margins and
"We could be early in our recommendation, but we think the company is closer to reaching an inflection point than not, and there is significant opportunity once raw material costs begin to swing in
Cooper's favor," sums up Cristello.