Firm reiterates 'sell' rating on Goodyear common stock

ERJ staff report (TB)

Stamford, Connecticut -- CRT Capital Group L.L.C. has reiterated its “sell” rating on Goodyear common stock while increasing its price target for the tyre maker's common shares to $10.

The 20-year old Stamford-based independent sales, trading and research firm said it is revising its 2009 and 2010 earnings and cash flow estimates for the Akron-based tyre maker. In addition, CRT noted that it is rolling out its 2011 estimates to reflect:

1. An upward trend in volumes and prices;

2. A favorable shift in mix; and

3. Substantial structural cost reductions.

“Although we are forecasting a dramatic improvement in (Goodyear's) earnings over our forecast period, our estimates remain below consensus,” CRT said in its latest report on the company.

More specifically, the firm added that it is reducing its fourth quarter 2009 earnings-per-share estimate from a loss of 8 cents to a loss of 23 cents “to reflect, among other things, a more unfavorable year-over-year impact related to unabsorbed overhead. We believe that our (2009 fourth quarter) estimate is at the low end of the guidance that (Goodyear) management provided” on the company's third quarter investor call.

CRT added that the combination of Goodyear's better-than-expected third-quarter results and the downward revision to CRT's fourth-quarter estimates “leaves our full-year 2009 estimate (adjusted to exclude special items) essentially unchanged at a loss of $1.33.”

The company pointed out that its revised price target is still about 25 percent below Goodyear's current trading level. However, it said that, overall, “we are comfortable with (Goodyear's) leverage and liquidity,” although CRT's forecasts suggest that the trends in the Akron-based tyre company's credit profile “will be mixed during our forecast period.”

The firm estimated that Goodyear's net debt will increase by about $408 million between Dec. 31, 2009, and Dec. 31, 2011, due primarily to cash flow deficits next year and the following year. On the other hand, CRT said it expects Goodyear's net leverage relative to its earnings will decrease due to the upward trend in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

CRT said its approach “is designed to capture (Goodyear's) leverage-both on-and-off-balance sheet-as well as a normalized level of earnings and cash flow.”

From Tire Business (A Crain publication)