Analysts: Goodyear Poised for Growth

Goodyear shares have overcorrected “amid confusion over its second quarter performance and concerns about the slowing US economy.” That’s the view of analysts at Deutsche Bank who predict that “the current low valuation and low expectations present a compelling opportunity.”

The analyst’s report explained that Goodyear’s EBIT margins have been that of a somewhat schizophrenic company; achieving segment pre-tax margins approaching 11 per cent outside of North America but less than 1 per cent within North America.

“It is our belief that Goodyear’s North American profitability will improve dramatically over the next two years as a result of cost savings. Positive margin trends have already been evident, as North American segment EBIT improved to 2.3 per cent in the second quarter of 2007, from 0.3 per cent in second quarter of 2006,” the report read, adding:

The analysts suggest that the company’s cost reduction programme is on track, but reaching this conclusion requires a deep dive into the second quarter results. They say that “relatively modest” savings were achieved, but that these were obscured by mainly non-recurring costs.