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Cooper Tire & Rubber Co. Message Board

  • DONEDEALER DONEDEALER Mar 4, 2000 7:22 AM Flag

    statesidefonguam: my 2 cents on CTB

    Most of the negative comments about CTB on
    this
    board relate to the stock not the company.
    The stock
    has performed very poorly as have
    most auto
    suppliers: see DCN and FMO.

    I keep hearing that the
    company is in trouble,
    took on too much debt, overpaid
    for SPD and
    that management is
    incompetent.

    From 1983 through 1999 EPS increased from
    .42 to
    1.87 with the dividend rising every
    year from .04
    to .27. There has never been a year that CTB has
    earned less than 14% ROE
    with equity per share
    increasing every year
    from 1.75 to 12.70. EPS is
    forecasted to
    increase to 2.04 this year and 2.23 next
    year.
    With the SPD acquisition they have picked up
    .15
    per share amortization of goodwill, so
    for cash
    EPS add .15 to the forecasts bringing
    them to 2.19
    this year and 2.38 next.

    Apparently the
    naysayers either believe a 4PE
    ratio is too high a price
    for CTB or believe
    that these EPS projections are
    too high.
    If the later case, they must know more
    than the half dozen analysts following the
    company.

    I do not see this as a classic "turnaround
    play"
    as I have yet to see any "turndown"
    to be turned
    around.

    As for weakness in 4th quarter this
    was
    to be expected from "housecleaning" moves
    from
    the acquistions. It is standard
    procedure to have
    write-offs and clean the
    slate for the following
    year.

    I am still waiting for the bad earnings
    the
    naysayers project.

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    • I agree with you, in a report 2/8/00 S&P said the
      company still has a strong balance sheet but cyclicals
      are just out of favor now.Everything I read still
      project over $2 earnings this year, thats a 5 PE not bad.

    • Donedealer,

      Thank you for your recent post
      which was very insightful. I have little accounting
      expertise and would like to ask a few questions. What is
      amortization of goodwill? I thought that goodwill is basically
      giving things away for charitable purposes i.e.
      donations for the needy. How could that account for per
      share earnings?

      Also how do acquisitions create
      a need for "housecleaning"?

      In regard to
      CTB's financial situation I checked the Yahoo profile
      page
      at:

      http://biz.yahoo.com/p/c/ctb.html

      According to their info the Earnings Per Share is $1.79 for
      the trailing twelve months with a 5.62 Price/Earnings
      and an annual dividend of $0.42/share. This is
      definitely a "value" stock in today's stock
      market.

      How are you calculating this year's and next year's
      EPS?

      Thanks again for your help.
      Statesider on Guam

      • 1 Reply to statesideronguam
      • Goodwill is the excess of the purchase
        price
        paid for a business over the net assets on
        the
        books of the acquired business. It is required
        to be
        amortized or wrtitten off over a period
        of years.
        However, it is not like depreciation
        of fixed assets,
        which will be replaced. There
        is no need to replace
        the goodwill. Therefore,
        it is essentially hidden
        earnings. For CTB
        it is about 15 cents per share and
        should be
        added back to the 2.04 and 2.23 EPS
        estimates
        for 2000 and 2001.

        I did not calculate these
        EPS projections.
        They are the averages of analysts
        following
        the company. Click on Research to get
        the
        details.

        Acquisitions do not create a need for
        accounting
        "housekeeping" but they do create
        an opportunity which
        management acts upon.
        Any assets not deemed to be usable
        are
        written off. Any anticipated expense is
        accrured. In
        effect, the year 1999 was
        charged with the expense
        rather than have
        it be an expense against a future
        year.

        Much has been made of the debt slightly
        exceeding
        the equity. However, with CTB's
        strong earnings
        and cash flows this should
        be reduced
        significantly in a couple of years.
        If at the end of 2000
        equity and debt are
        equal at about $14 each per
        share, with
        1.50 per share per year of excess of
        EPS
        over dividend per share, equity will be
        15.50 and
        debt 12.50 in one year (.81 ratio)
        and equity will
        be 17 and debt 11 at end of
        2002 (.65
        ratio).

        There is only one thing to fear for CTB and
        that is
        EPS declining significantly below
        $2.00 per share.
        I have yet to see any evidence of this. In a year
        or 2 CTB will be
        selling for 2 times BV per
        share: that is $28
        this year or $31 in 2001 or $34 in
        2002.
        In effect you will be compensated for
        waiting.
        Remember the ad: "you can pay me now or you
        can pay me
        later". This is on top of 5%
        dividend while you wait.

 
CTB
30.28-0.28(-0.92%)Jul 23 4:04 PMEDT

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