Institutions Are Buying The Dip In Goodyear Tire & Rubber Company
Share of Goodyear Tire & Rubber Company (NASDAQ: GT) imploded after reporting a much better than expected quarter. To some, the news was good but means future growth is already priced in and for some, the guidance was more than they were expecting. The guidance is calling for systemic headwinds and inflation to dampen results but not everyone is buying it. Specifically, JPMorgan Chase thinks the selloff was an overreaction that has it set up for a rebound later in the year.
Analyst Ryan Brinkman: "Overall, the sell-off strikes us as an overreaction given what (we) foresee as much more modest needed reductions to consensus, and because pricing has been quite strong so far this cycle, with Goodyear posting its 6th consecutive positive quarterly Price/Mix-to-Raw Materials spread in 4Q, suggesting the possibility of better than currently envisaged ability to price for non-commodity costs."
The Institutions Are Aggressively Buying Goodyear Tire & Rubber Company
The institutions are aggressively buying shares of Goodyear Tire & Rubber Company and it doesn’t look like they are going to stop. The institutions purchased a net $1.18 billion in shares over the past year which is worth more than 27% of the market cap with shares trading near the 1-year low mark. Institutional activity has, so far, been bullish in 2022 as well bringing total holdings up to 82.20%. That’s a big vote of confidence in our book and driven at least in part by the stock's incredibly low valuation. Shares of GT are now trading just above 5X their earnings with strong secular tailwinds to support the business over the next few years.
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And that analyst activity is picking up too. There have been two upgrades since the Q4 earnings report was released including a double-upgrade by JPMorgan from Neutral to Overweight. The other is from Reduce to Neutral and includes a price target increase. The new consensus is $21.00 and projects about 26% of upside for the stock compared to the high price target of $32 which suggests a triple-digit gain is possible. That target was set by Deutschebank in December when it upgraded the stock from Hold to Buy. The consensus target is up 90% from last year.
Goodyear Falls On Earnings Topper
Goodyear Tire & Rubber had a great quarte despite systemic challenges and shut-downs in the OEM auto industry. The company reported $5.05 billion in net revenue for a gain of 38% over last year including the addition of Cooper Tire. On an organic basis, sales grew by 32% with strength in most segments. On a volume basis, tire units sold increased by 29% on a 39% increase in replacement tires.
The OEM segment contracted by 1% but would have grown if not for the micro-chip and component shortages hampering the industry. In regards to margin, the company logged another quarter of positive price/mix relative to input costs driven largely by pricing. The company is expecting pressures to continue for the next few quarters but we see not only company-specific headwinds improving but business within the OEM segment picking up as well.
The Technical Outlook: Someone’s Buying The Dip In Goodyear Tire
Shares of Goodyear Tire fell roughly 20% in the wake of the earnings report but the dip is already being bought. Price action held above a long-term and key support level and is now moving higher on the JPMorgan upgrade. In our view, price action may bob along at these levels for the next quarter or so but, after that, we see a rebound and acceleration of business that will aid the rebound in share prices driven by institutional buying.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Goodyear Tire & Rubber (GT) | $9.51 | +3.0% | N/A | -9.14 | Moderate Buy | $17.23 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
