Deutsche Bank lifts Goodyear estimates after strong Q2
As mentioned on 30 July, Goodyear Tire & Rubber’s second quarter net earnings per share of US$0.67 were markedly above the average analyst estimate. Deutsche Bank Equity Research Automotive comments that Goodyear’s Q2 operating earnings per share of $0.76 were a full $0.32 cents per share above its own prediction.
The tyre maker’s performance exceeded Deutsche Bank estimates pretty much across the board; second quarter segment operating income of $428 million was far ahead of Deutsche Bank’s estimate of $337 million, while the $92 million year-on-year benefit to segment EBIT gained through favourable price/mix net of raw materials was $42 million better than what Deutsche Bank expected. Net cost reduction was a $38 million step up and $33 million better than Deutsche Bank estimates. Tyre unit volumes, predicted by Deutsche Bank to be flat, were up $11 million year-on-year.
Deutsche Bank opines that Goodyear’s volume trends “could be at an inflection point.” While analyst Rod Lache says the bank’s analyst team “were somewhat disappointed by” by the five per cent year-on-year drop in replacement market volumes in North America, he noted that total global tyre volumes were up 0.8 per cent year-on-year, the first year-on-year boost since the first quarter of 2011. As Goodyear says it expects global volumes to rise by three to five per cent year-on-year in the third quarter, Deutsche Bank is increasing its 2013 segment income estimate from $1.4 billion to $1.5 billion; Lache says the main reason for this upward revision is the Q2 upside.
“We now expect 2014 segment operating income of $1.72 billion and are raising 2013 earnings per share to $2.35 versus $1.95 previous and our target price to $21 from $18, now based on a DCF (discounted cash flow) derived 5.3x EV/2014 EBITDAP (earnings before interest, taxes, depreciation, amortisation and pension income) multiple versus prior 5.0x,” wrote Lache in DB Equity Research Automotive’s report for 1 August. “We note that our new target price would represent approximately 9.3x 2014 pro forma earnings per share assuming Goodyear Tire & Rubber funds its US hourly pension with a combination of equity, convertible preferred and debt.”