On Wednesday, JPMorgan (NYSE:JPM) adjusted its outlook on Goodyear Tire & Rubber (NASDAQ:GT), reducing the price target to $17 from the previous $18, while maintaining an Overweight rating on the stock. The decision followed Goodyear's recent earnings report, which, despite being in line with JPMorgan's estimates and above consensus, hinted at a weaker start to the year than anticipated.
Goodyear's fourth-quarter earnings revealed revenues of $5.128 billion, a figure lower than both JPMorgan's projection of $5.385 billion and the consensus estimate of $5.389 billion. Tire shipments decreased by 4% year-over-year, which was a steeper decline than JPMorgan's estimated 1% drop. However, the company's Segment Operating Income (SOI) of $383 million was close to JPMorgan's forecast of $380 million and exceeded the consensus of approximately $345 million.
The slight outperformance in SOI was attributed to better-than-expected net cost savings of +$10 million year-over-year, surpassing JPMorgan's prediction of a -$50 million. These savings helped to counterbalance weaker shipment volumes and a slightly lower Price/Mix-to-Raw Materials spread. Adjusted diluted EPS for the quarter came in at $0.47, topping both JPMorgan's estimate of $0.40 and the consensus of $0.36.
Looking ahead, Goodyear did not provide explicit SOI guidance for the first quarter of 2024, but the limited guidance available suggests softer volumes that are not fully compensated by raw material cost tailwinds and savings from the Goodyear Forward initiative. Consequently, JPMorgan has revised its first-quarter SOI projection downward from $317 million to $225 million.
For the full year, Goodyear's management has forecasted approximately $375 million in raw material cost tailwinds and roughly $350 million in annual savings from Goodyear Forward. Despite these factors, JPMorgan has decreased its SOI estimates for 2024 and 2025.
"As such, driven by the lower volume and relatedly lower absorption or fixed overhead costs ” only partly offset by higher cost savings ” our estimate of 2024 SOI declines to $1,350 mn from $1,500 mn prior, and our estimate of 2025 SOI declines to $1,700 mn from $1,875 mn prior. Given our lower forecasted SOI, as well as elevated costs related to executing the Goodyear Forward plan (including restructuring spending), we now expect a free cash outflow of ~$0.2 bn in FY24 before inflecting positively in FY25," said the analyst.
This outlook adjustment has led to the lowered price target for December 2024.
InvestingPro Insights
In the wake of JPMorgan's revised outlook on Goodyear Tire & Rubber, current InvestingPro data and tips provide further context to the company's financial health and market position. Goodyear operates with a significant debt burden, which is an important consideration for investors. This is echoed by its negative P/E ratio, which stands at -4.79, reflecting challenges in profitability. Additionally, the company's stock has experienced a sharp decline over the last week, with a 1 Week Price Total Return of -15.77%. Despite these challenges, it's noteworthy that Goodyear is a prominent player in the Automobile Components industry, which may offer some resilience in the face of market volatility.
InvestingPro Tips further suggest that Goodyear's stock is currently in oversold territory, as indicated by the RSI. This could signal a potential rebound opportunity for investors who are monitoring the stock's technical indicators. Moreover, analysts predict that the company will turn profitable this year, a contrast to the net loss over the last twelve months. However, it's important to note that Goodyear does not pay a dividend to shareholders, which might affect the stock's appeal for income-focused investors.
For those looking for more comprehensive analysis, InvestingPro offers additional tips for Goodyear Tire & Rubber, which can be accessed at https://www.investing.com/pro/GT. There are 6 more InvestingPro Tips available, which could provide deeper insights into the company's performance and prospects. Interested readers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, further enriching their investment strategy.
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