Report downgrades Cooper Tire stock

ERJ staff report (TB)

New York -- Citing “generally poor debt management, poor profit margins and weak operating cash flow,” TheStreet Wire Ratings has downgraded Cooper Tire & Rubber Co.'s stock from buy to hold.

However, TheStreet Wire, which reports on the financial industry, stock markets and investments, did say Findlay, Ohio-based Cooper has strengths that “can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share and compelling growth in net income.” Countering those strengths were the weaknesses with debt management and profit margins, it said.

TheStreet's ratings report on Cooper also noted that the company's debt-to-equity ratio of 1.07 “is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, (Cooper) maintains a poor quick ratio of 0.91, which illustrates the inability to avoid short-term cash problems.”

The report said the tyre maker's net operating cash flow has decreased to minus $41.46 million or 37 percent when compared to last year's same quarter. “In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower,” it added.

On the plus side, the report said Cooper “has improved earnings per share by 25 percent in the most recent quarter” compared to the same quarter in 2010. “The company has demonstrated a pattern of positive earnings per share growth over the past two years.” TheStreet also said: “We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, (Cooper) increased its bottom line by earning $1.85 vs. $1.52 in the prior year. This year, the market expects an improvement in earnings ($2.25 vs. $1.85).”

Highlighting another positive, TheStreet said Cooper's “revenue growth has slightly outpaced the industry average of 10.3 percent. Since the same quarter one year prior, revenues rose by 20.1 percent. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.”

From Tire Business (A Crain publication)