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Description
The Goodyear Tire & Rubber Company was founded in 1898 and is based in Little Cuyahoga River in East Akron, Ohio, USA. It is one of the largest companies developing, manufacturing, distributing, and selling tires for nearly every kind of application. Goodyear’s product line also contains rubber-related chemicals and automotive repair services, as well as retreads for truck, aircraft, and heavy equipment. The company provides its products and services worldwide, employing about 80,000 people worldwide, and it controls a significant part of its value chain.

Annual sales reach approximately USD 21 billion; around 70% of which are in the pure replacement market, and the remaining 30% in OEM related sales. Geographically sales can be broken down in the following way: North America 46%, Europe 33%, Latin America 10%, and Asia 11%.

As Goodyear can be viewed as single product company, the development of raw material prices is one of the most important elements to look at when considering the company as the price of raw materials can vary significantly. Natural and synthetic rubbers generally constitute about 30% of the cost of goods sold (COGS) . A combination of higher replacement cycles and lower commodity prices are expected to drive business well into 2014 and the beginning of 2015. This unique alignment should also increase EPS in 2013 and 2014 by about 25% and 23% respectively. 


Strengths and weaknesses analysis / Fundamental analysis:
Strengths: 

• The company’s cost saving program should achieve cumulative benefits of about USD 150 million over the next three years. The net figure of this efficiency program is in excess of inflation,
• Annual volume growth is at about 2.2% (including replacement growth). Every additional single percentage increases EBIT by about USD 50 million,
• Goodyear has low P/E and EV/EBITA valuations; these figures are well below the peer group average.

Weaknesses:

• Further upside to the company’s valuation is at risk due to a lack of economic recovery, especially in Europe and Asia,
• The company’s pension fund liability is a major concern for long term investors,
• Further loss of consumer confidence could soften the product replacement cycle,
• An unexpected pick-up in raw material prices would hurt the company’s revenue streams and more importantly EPS expectations.