Goodyear Strategy Impresses Tire Industry Analyst

Sept. 20, 2016

Goodyear Tire & Rubber Co. made a big splash at its recent Investor Day in Boston. Nick Mitchell, senior vice president of research for Northcoast Research Holdings LLC, says the company made a "strong commitment  to remain true to the strategy of focusing on specific target markets in order to get paid well for the products the organization brings to market."

Mitchell says Goodyear is well-positioned to benefit from favorable industry fundamentals, including the following:

* a rational pricing environment,

* balanced-to-favorable supply/demand dynamics, and

* strong HVA (high value added) mix-up trends across the globe.

"Management seemed extremely confident in their ability to manage profitability per tire going forward, even if raw material cost pressures return to the global tire market. In fact, management presented a slide that contained two charts illustrating the price-to-raw material spread on a trailing four quarters and cumulative basis since the end of 2009. The data clearly support management’s assertion that the organization can leverage its market-back product development and aligned distribution strategies to neutralize the impact of changes in raw material costs on a timely basis."

Goodyear plans on achieving $3 billion of segment operating income by the end of 2020, which Mitchell says implies average annual growth of approximately 8% to 10% from the projected 2016 target.

"In general, we were very pleased with management's commentary throughout the 2016 Investor Day," says Mitchell. The result? Northcoast Research is reiterating its "BUY" rating and $37 per share price target on Goodyear's stock.