presented on december 1, 2015 goodyear tire and rubber company (nasdaq: gt) analysts zhi cheng...
TRANSCRIPT
Presented on December 1, 2015
GOODYEAR TIRE AND RUBBER COMPANY
(NASDAQ: GT)Analysts
Zhi Cheng (Nicole) LowShruti Shah
Sashikanth (Sash) Yenika
Screening Process
New Industry for Portfolio
Diversification
Piotroski Score = 6
Market Cap. Mid Cap: 2B – 10B
Altman Z-score = 1.98
Current Price vs. 52w High
= -0.05 % > -10 %
20Day MA > 200Day MA
Sources: Goodyear Official Website and Yahoo Finance!
Market Cap$9.36 Billions
TTM P/E3.39x
TTM EPS$10.26
Company Introduction
Business DescriptionDevelops, manufactures, and sells tires, and rubber-related products for automotive and industrial applicantsPrimary IndustryTire Manufacturing
Global HeadquartersAkron, Ohio, U.S.A
Year FoundedAugust 29, 1898EmployeesApproximately 67,000
Sources: Goodyear 2014 10K, pg. 6-20
Business Overview and Segments
Sources: Goodyear Official Website
Global Operating Facilities
North Americao 18 manufacturing
facilities in US and Canadao Supplies tires to
manufacturers of automobiles, motorcycles, trucks and aircraft
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.
EMEAo 17 manufacturing
facilities in 9 countrieso Supplies tires to vehicle
manufacturers throughout the region
Latin Americao 6 manufacturing
facilities in 5 countries
o Manufactures and sells automobile and truck tires
Asia Pacifico 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%
o Growth in emerging markets
o Profitable segments in mature markets
o HVA (high value added) tires in mid-tier
o Green trendo Tire labeling o Internet changing buying
behavioro Changes are
evolutionary not revolutionary
Management’s Strategic Priorities
INDUSTRY MEGATREND
S
Sources: Goodyear 2014 10K, pg 4
CURRENT POSITION
KEY HOW TO’S
GT’S DESTINATION CREATING SUSTAINABLE
GROWTH
KEY STRATEGIES
INDUSTRY MEGATREND
S
SWOT Analysis
W
O T
Weaknesseso High leverage ratios
Strengthso Strong R&Do Manufacturing
capabilitieso Strong market
presence
SOpportunities
o New products & services
o Business expansion activities
o Buoyant demand for automobiles
Threatso 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
• 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
Challenges• Inconsistency in supply and demand leading to
overcapacity• Falling automobiles per household
Sources: www.ibisworld.com & Global Industry Analysts, Inc.
Porter’s Five Forces Analysis
Industry Rivalry
(Moderate)
Threat from New
Entrants
(Low)
Buyer’s Bargaini
ng Power (Modera
te)
Threat of
Substitutes (Low)
Supplier’s
Bargaining
Power (High)
o Large capital requirementso High sunk costo Strong brand nameo Economies of scale &
updated technology
o Essential componento There aren’t any
substitutes
o Low concentration of major suppliers
o Volatility in prices of major raw materials
Original Equipment (High)o Highly concentrated market o Low switching cost for
buyers Replacement (Low)o High service level & short
delivery timeo Small size buyers & not
concentrated
o Very few powerful competitorso Low cost competition from Asian
companieso High market grown o High levels of product
differentiation
Macroeconomic Overview
2013 2014 2015 2016 2017 2018 2019 20200
50
100
150
World Price of Rubber
Year
Cents
per
pound
2013 2014 2015 2016 2017 2018 2019 20200
20
40
60
80
100
120
World Price of Crude Oil
YearD
ollar
per
barr
el
2013 2014 2015 2016 2017 2018 2019 20200
20406080
100120
Trade Weighted Index (Exchange Rate Fluctua-
tion)
YearIn
dex
Sources: www.ibisworld.com
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
SENSITIVITY ANALYSIS
VALUE PER SHARE
Current Stock Price:$34.88
DCF Valuation: $37.95
Relative Valuation:$43.26
Target Price: $39.54
Recommendation
Recommendation: BUY 200
sharesAt current
market price
o Improving margins
o High demand from emerging markets
o Demand for high-value-added tires with features like fuel saving, wet traction or ride comfort
o Dividend yield 0.90%
Strong US$
Economic instability and political unrest in key markets
Stock Price
Stock Price
GT provides diversification benefits to our existing portfolio
Sources: Yahoo Finance!
THANK YOU!
Q&A