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GOODYEAR TIRE AND RUBBER COMPANY
(NASDAQ: GT)
Analysts
Zhi Cheng (Nicole) Low
Shruti Shah
Sashikanth (Sash) Yenika
Presented on December 1, 2015
Screening Process
New Industry for
Portfolio Diversification
20Day MA > 200Day MA
Piotroski Score = 6
Current Price vs. 52w High
= -0.05 % > -10 %
Market Cap.
Mid Cap: 2B – 10B
Altman Z-score = 1.98
Company Introduction
Business Description
Market
Develops, manufactures, and sells
tires, and rubber-related products
Cap
for automotive and industrial
$9.36 Billions
applicants
TTM P/E
3.39x
TTM EPS
$10.26
Primary Industry
Year Founded
Tire Manufacturing
August 29, 1898
Global Headquarters
Employees
Akron, Ohio, U.S.A
Approximately 67,000
Sources: Goodyear Official Website and Yahoo Finance!
Business Overview and Segments
Sources: Goodyear 2014 10K, pg. 6-20
Global Operating Facilities
EMEA
o 17 manufacturing facilities
in 9 countries
o Supplies tires to vehicle
manufacturers throughout
the region
North America
o 18 manufacturing facilities
in US and Canada
o Supplies tires to
manufacturers of
automobiles, motorcycles,
trucks and aircraft
Latin America
o 6 manufacturing
facilities in 5 countries
o Manufactures and sells
automobile and truck
tires
Sources: Goodyear Official Website
 Around 50 Manufacturing Facilities in 22
countries
 Two R&D facilities and technical centers
 Eight tire proving grounds
 Approximately 1,200 retail outlets
 Around 60 tire retreading facilities, and 170
warehouse distribution facilities.
Asia Pacific
o 8 manufacturing facilities in
6 countries
o Sells primarily Goodyear
brand tires across the region
o Sells Dunlop brand in
Australia and New Zealand
Management Analysis
Effective corporate governance policies
 All directors are independent, except CEO and one labor union-affiliated director
 100% independent compensation, audit and nominating committees
 Shareholders have the right to call a special meeting at 25%
Management’s Strategic Priorities
CURRENT POSITION
INDUSTRY
MEGATRENDS
KEY HOW TO’S
KEY STRATEGIES
INDUSTRY
MEGATRENDS
GT’S DESTINATION
CREATING SUSTAINABLE GROWTH
o
o
o
o
o
o
o
Sources: Goodyear 2014 10K, pg 4
Growth in emerging markets
Profitable segments in mature
markets
HVA (high value added) tires
in mid-tier
Green trend
Tire labeling
Internet changing buying
behavior
Changes are evolutionary not
revolutionary
SWOT Analysis
Strengths
o Strong R&D
o Manufacturing capabilities
o Strong market presence
Weaknesses
S
W
Opportunities
o New products & services
o Business expansion
activities
o Buoyant demand for
automobiles
o High leverage ratios
Threats
O
T
o Stringent regulations
o Intense competition both in
price and quality
o Appreciation of US$ results in
unfavorable foreign currency
translation
GT’s Three-year Performance Summary
Sources: Goodyear 2014 10K
Stock Market Prospect
Sources: Yahoo Finance!
Industry Overview
 Tire Manufacturing Industry
 Major market – USA & Europe
 Growing Market – Asia Pacific
 Major manufacturing products – motor vehicle and aircraft tires, inner tubes and tire repair materials
 Future Industry Outlook
 Cater to changing consumer preferences by developing and selling fuel efficient cars
 Expansion of product lines and streamlining operations
 Industry expected to grow at an annualized rate of 0.8% to $19.4bn by 2020
Sources: www.ibisworld.com
Industry Overview
Drivers
Challenges
Sources: www.ibisworld.com & Global Industry Analysts, Inc.
•Expected stable increase in Automobile production
•Increasing demand for advanced tire models
•Aging vehicles leading to more demand for replacement tires
•Increasing vehicle miles travelled
•Inconsistency in supply and demand leading to overcapacity
•Falling automobiles per household
Porter’s Five Forces Analysis
o Large capital requirements
o High sunk cost
o Strong brand name
o Economies of scale & updated
technology
o Low concentration of
major suppliers
o Volatility in prices of
major raw materials
Supplier’s
Bargaining
Power
(High)
o Essential component
o There aren’t any
substitutes
Threat
from New
Entrants
(Low)
Industry
Rivalry
(Moderate)
Threat of
Substitutes
(Low)
o Very few powerful competitors
o Low cost competition from Asian
companies
o High market grown
o High levels of product differentiation
Buyer’s
Bargaining
Power
(Moderate)
Original Equipment (High)
o Highly concentrated market
o Low switching cost for buyers
Replacement (Low)
o High service level & short
delivery time
o Small size buyers & not
concentrated
Macroeconomic Overview
World Price of Rubber
Cents per pound
World Price of Crude Oil
Dollar per barrel
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
Year
2018
2019
150
100
50
0
2012
2020
2014
Trade Weighted Index (Exchange Rate
Fluctuation)
120
Index
100
80
60
40
20
0
2013
Sources: www.ibisworld.com
2014
2015
2016
2017
Year
2018
2019
2020
2016
Year
2018
2020
Macroeconomic Overview
Sources: www.ibisworld.com
Comparable Valuation
Sources: CapitalQ and Yahoo Finance!
Financial Analysis
Steady increase in profitability ratios despite declining asset turnover led to improved returns
Income tax
benefits in
2014
DuPont Analysis and Greenblatt Ratios
Greenblatt ratios indicate further room for
improvement in efficient use of operating assets
DUPONT ANALYSIS
Financial Projections
Revenue projections are made using the average price of raw materials and expected units to be sold
KEY INCOME STATEMENT ITEMS
KEY BALANCE SHEET ITEMS
WACC
High leverage and volatility
in key economies like Latin
America
DCF Valuation
Implied Price
VALUE PER SHARE
SENSITIVITY ANALYSIS
Recommendation
GT provides diversification benefits to our existing portfolio
o
Improving margins
o
High demand from emerging markets
o
Demand for high-value-added tires with
features like fuel saving, wet traction or
ride comfort
o
Stock Price
Dividend yield 0.90%
DCF
Valuation:
$37.95
Current
Stock Price:
$34.88
Sources: Yahoo Finance!
Recommendation:
Relative
Valuation:$
43.26
Target
Price:
$39.54
BUY 200 shares
At current market
price
Stock Price

Strong US$

Economic instability and political unrest in
key markets
THANK YOU!
Q&A