Analyst says Titan should keep on its toes

June 10, 2012

Titan International Inc. needs to keep an eye on its OTR tire capacity situation, according to C. Schon Williams, an analyst with BB&T Capital Markets.

Although he recently reiterated the Buy (1) rating on the company's stock, he noted Goodyear Tire & Rubber Co.'s plans to increase OTR tire production is the latest in a series of investments in OTR tire plants. All four companies involved, including Titan, claimed the expansions are necessary to keep pace with growth in demand.

"Goodyear’s announcement represents the latest push by several tire makers to boost OTR tire production," said Williams. "Both Michelin and Bridgestone have recently announced new capacity additions in North America and overseas for the large OTR market.

"Last September, Bridgestone announced plans to build a new 1.5 million-square-foot factory in Aiken County, S.C., to produce OTR tires. Then, in April, Michelin said it would spend $750 million to build a new factory in Anderson County, S.C., and expand an existing plant in Lexington, S.C., to build more earthmoving tires."

(This year, Bridgestone and Michelin have been involved in a war of words over their respective places in the global OTR tire market.)

"Capacity additions are certainly something to keep an eye on as it relates to Titan," said Williams. "Given the number of announcements we’ve seen in the last nine months, the concern would be that too much capacity is coming online and would disrupt margins in the market."

In the past, Williams has described Titan's financial and capacity projections as "reasonable."

"Given multi-year lock-ups on tire pricing, a significant time delay before additional capacity comes online and Titan’s role as a supplemental supplier, we view this as something to keep an eye on, but aren’t particularly concerned in the near-term." (Williams said Titan just wants to be a "distant number three" in the market)

He added that recent comments from Titan CFO Paul Reitz and Caterpillar Inc. CEO Doug Oberhelman support the need for added capacity in the OTR market.

BB&T Capital Markets is a division of Scott & Stringfellow Inc., a registered broker/dealer subsidiary of BB&T Corp.