Goodyear a 'Buy' after transformation plan revealed: Analyst
Goodyear Tire (GT) announced its "Goodyear Forward" transformation plan—which will focus on debt reduction and cost cuts. In addition to this plan, the tire brand has announced a change in management— with Chairman, CEO, and President Richard J. Kramer retiring.
Deutsche Bank U.S. Auto Technology Analyst Emmanuel Rosner upgraded the stock to "Buy" from "Hold" and raised his price target to $21 on the announcements. Rosner notes that this change in management could potentially provide “more confidence” for analysts and investors. Rosner says this is a "transformative moment" for the company and that “through self help” it could deliver more value for shareholders.
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Video Transcript
JULIE HYMAN: Goodyear Tire, the shares are extending gains after yesterday announced a transformation plan that included reducing debt, cutting costs, and the sale of three of its business assets. The company also announcing its current CEO Richard Cramer will retire next year. Search is underway for his replacement. Cramer calling the transformation plan a, quote, "clear path to create a more profitable and focused Goodyear."
And one analyst is seeing major upside from these changes. Here with more is Emmanuel Rosner. He is Deutsche Bank lead auto tech analyst. Manuel, thank you so much for joining us. So you're looking at these changes as positive for Goodyear. Let's be honest here, the tire business is not a glamorous business. What are we going to see as the sort of levers that are going to be most important in that plan and what you heard yesterday?
EMMANUEL ROSNER: Sure thing. Thanks for having me. I would say, look, Goodyear has been essentially underperforming dramatically, even compared to what you describe as sort of like a challenging tire business. The margins have been below peers. There's been a tremendous amount of execution issue. What we're basically seeing now is a major turnaround plan with about $1.3 billion of cost being taken out globally. We also seeing some non-core businesses being divested with $2 billion of potential proceeds.
And most critically, perhaps, we're seeing a change in management with a new CEO coming on board and essentially giving more confidence to us and probably to the market, that this plan will actually be executed and that there's all this upside. And so you essentially have, it's a very, very idiosyncratic story. It's not about making a call on the tire on the broader economy.
It's essentially an underearning, underperforming asset, an underperforming stock, which is not a transformative moment, where you could essentially through self-help, improve earnings dramatically, de-lever the balance sheet, and essentially unlock some shareholder value.
