The Goodyear Tire & Rubber Company (GT) closed yesterday’s trading session at $17.35, just 1.9% below its 52-week high of $17.69, which it hit on February 24. Even though the demand for GT’s tires and related products slumped at the beginning of the pandemic owing to travel restrictions, investors are hopeful that demand for its products will pick up as more cars return to the road. The stock has gained more than 59% so far this year on this positive outlook.

GT announced a strategic collaboration with ConMet in January. The collaboration is for the  creation of digital solutions to better monitor the condition of commercial truck fleets’ tires and wheels.

GT’s stock also soared on the company’s February 22 announcement that it had agreed to acquire Cooper Tire & Rubber Company (CTB). The acquisition could help GT expand its presence in distribution and retail channels.

Here’s what we think could shape GT’s performance in the near term:

Robust Financials

GT’s  net sales increased 5.5% sequentially to $3.66 billion for the fourth quarter, ended December 31, 2020. GT reported net income of $63 million for the fourth quarter, which is a considerable improvement considering the company’s net loss of $392 million for the fourth quarter of 2019. Also, its adjusted EPS of $0.44 for the fourth quarter surpassed a consensus estimate by 175%. Also,  GT surpassed the consensus EPS estimates in three of the trailing four quarters.

Increasing Focus on Autonomous Vehicle Space

GT forged  a strategic relationship with SafeAI last  December to incorporate tire intelligence into the programming of autonomous heavy equipment vehicles. GT also collaborated with TuSimple in November to provide tires and tire management solutions to TuSimple’s Autonomous Freight Network (AFN). TuSimple is a global autonomous trucking technology company.

Furthermore,  GT’s venture capital arm, Goodyear Ventures, added Starship Technologies to its investment portfolio in January. It is  an autonomous delivery company.

Discounted Valuation

In terms of forward enterprise value/sales, GT is currently trading at 0.65x, 59.1% lower than the industry average  1.59x. In terms of forward price/sales, the stock’s 0.27x is 79.2% lower than the industry average  1.30x. The stock’s forward enterprise value/EBITDA of 6.36x is also lower than the industry average 12.99x.

Favorable Analyst Estimates

Analysts expect the company’s revenue to increase 12.6% for the current quarter, ending March 31, 2021, 64% for the quarter ending June 30, 2021 and 18.3% in 2021. Its EPS is expected to grow 118.3% for the current quarter, 141.9% in fiscal 2021 and at a rate of 9.1% per annum over the next five years.

The stock has an average broker rating of 1.5, indicating favorable analyst sentiment. Of eight  Wall Street analysts that have rated the stock, four have rated it a Strong Buy and two have rated it a Buy.

POWR Ratings show Promise

GT has an overall rating of B, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. The stock has a B grade for Sentiment, in sync with the favorable analyst sentiment.

GT has a B grade for Value also. This is consistent with the stock’s lower-than-industry valuation ratios.

Beyond what we have stated above, we have also  given GT grades for Momentum, Stability, Growth and Quality. Get all of GT’s ratings here.

GT is ranked #18 of 69 stocks in the A-rated Auto Parts industry.

Click here to access several other top-rated stocks in the same industry.

Bottom Line

GT has plenty of upside despite gaining more than 59% year-to-date based on its expanding market presence and continuous innovations to meet  market demand in a more efficient way with the help of advanced technologies. Also,  as the demand for tires is  expected to rebound once  coronavirus related travel restrictions are removed, we think it wise to buy this undervalued stock now.

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GT shares were trading at $17.99 per share on Tuesday morning, up $0.64 (+3.69%). Year-to-date, GT has gained 64.89%, versus a 3.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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