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Ludwig: Goodyear stock remains at 'Buy'

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Ludwig: Goodyear stock remains at 'Buy'

Despite currency problems in Venezuala and rising raw material costs, Goodyear Tire & Rubber Co.'s stock is a good "Buy," according to industry analyst Saul Ludwig.

The government of Venezuela has devalued its currency two to one, which could impact Goodyear's 2010 earnings per share (EPS) by about 14 cents "if nothing is done to offset the devaluation impact," says Ludwig, a managing director at KeyBanc Capital Markets.

Also, raw material costs are moving higher, "thus requiring most of the Jan. 1 price hikes to stick." He estimates that the bill of material for a "generic" tire in December 2009 was 7% higher than in September 2009. In addition, raw material costs were 9% higher compared to December 2008.

Ludwig, however, points out that global tire demand has sharply improved since the end of the third quarter of 2009.

"Heavy snows in the United States and Europe bode well for winter tire sell-out. Also, following strong demand, tire factories have ramped up production, thus leading to fuller overhead absorption.

"Our full year estimates for 2009 and 2010... are unchanged," he says. "Our rating remains 'Buy' and our price target stays at $19."

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