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$33 million charge won't hurt Cooper's rating

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$33 million charge won't hurt Cooper's rating

Will a $33 million judgment against Cooper Tire & Rubber Co. affect its first-quarter earnings? Analyst Saul Ludwig predicts it will.

But when all is said and done, Ludwig, a managing director for KeyBanc Capital Markets, reiterates his firm's "Buy" rating on Cooper's stock.

On March 19, Cooper was found guilty in a product liability case involving a 2007 minivan rollover crash in Iowa. The jury ruled that the left rear tire was defective, and that a chemical flaw in the rubber allowed the tire's steel belt to rust and weaken.

Cooper, which is partially insured for product liability lawsuits, says it plans to appeal the ruling.

"We offer no legal opinion as to the final outcome of the appeal," says Ludwig, "however, we expect Cooper Tire will likely record a charge in 1Q10 related to its share of these costs."

So, why the "Buy" rating? "The current environment in the tire industry remains favorable," he says. "Following our talks with several dealers throughout the country, demand continues to see steady improvement and business is strong.

"In addition, fill rates remain in the 70s and inventory levels are low — Cooper Tire is running its plants full out."

Cooper posted net income of $39 million on net sales of $733 million for the quarter ended Dec. 31, 2009.

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