Goodyear Tire & Rubber Co.

(14 February 2017)

GT Business Summary

Goodyear Tire & Rubber Co is engaged in manufacturing of tires. The Company develops, manufactures, markets and distributes tires for various applications. It also manufactures and markets rubber-related chemicals for various applications.

GT Fundamentals

  • Price to Earnings: 7.63
  • Earnings Per Share: $5.28
  • Market Cap: 8.5B
  • Current Ratio: 1.19
  • Return on Equity: 30.31%
  • Return on Assets: 7.52%
  • Dividend Yield: 1.00%
  • Price to Sales: 0.52
  • Price to Book: 1.84
  • Price to Free Cash Flow: 23.06

Balance Sheet ($ in Millions)

  • Total Cash increased $157.
  • Total Current Assets decreased $853.
  • Total Assets decreased $632.
  • Total Current Liabilities increased $17.
  • Total Liabilities Decreased $662.
  • Total Stockholder Equity increased $30.

Income Statement ($ in Millions)

  • Total Revenues decreased $106.
  • Income from Operations increased $26.
    • Cost of revenue and sales / administrative expenses decreased by a combined $132.
  • Net Income increased $244.
  • EBITDA increased $26.

Cash Flow Statement ($ in Millions)

  • Net Cash provided by operating activities increased $910.
  • Net Cash used in investing activities increased $24.
  • Net Cash used for financing activities increased $523.
  • Free Cash Flow increased $870.

Highlights from Last 10 Years

  • Consistent decreases over the last 4 years include: Total cash, total current assets, total current liabilities, total liabilities, total revenues, and operating expenses.
  • Consistent increases over the last 4 years include: Stockholders Equity, Cash from Operations, Free cash flow, and operating income.
  • Virtually remained the same include: net cash for investing and capital expenditures.

Entry Level: $20 and Below ($14 Ideal)

  • GT presents an interesting chart. Currently it is testing its former resistance at $36 dating back to 2007, it’s last time in the $30s before the Great Recession.
  • What’s also important to note is that it hit $36 back in 1987 and failed to break through until 1992.
  • It’s 200 day MA presents a downward trend, yet it’s 50 day SMA presents upward momentum.
  • At these prices, I would love to see a pullback into the $20 – high teens.

Exit Level: $50+

  • Morningstar rates GT at a 14% discount to its fair value of $41.
  • Using discounted cash flow models, GT presents a 29% Margin of Safety with a fair price of $50.

Research

  • GT has both brand recognition and a durable competitive advantage.
  • When people think of tires, they think of Goodyear, plain and simple.
  • GT presents an interesting value / growth play at current levels.
  • Increase in Net income was mostly in part due to decreases in both input costs as well as sales, administrative, and general expenses up at the top.
  • GT was not able to receive the special tax treatment it received back in 2014 – 2015, in which they were able to carry tax losses in assets over, which now results in declines of current assets.
  • Long term growth looks good, especially under Trump’s America First policy, GT already has plants in the United States, and has spent most of its cash on developing and manufacturing plants in the United States, such as in Arizona.
  • I would love to get this company for around $20 a share, and wouldn’t necessarily touch it now, given that it has risen 15% YTD.
  • Add to the fact that GT pays a 1.00% dividend, GT is a nice mid cap exposure play for any client who is seeking a big name company with a durable competitive advantage, and a business people can understand.
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