Goodyear Tire & Rubber Company - Automobile Components

8月1日

Key arguments in support of the idea.

• Reduction in leverage in the forthcoming quarters through asset sales.

• GT's margins may stabilize in Q2, which could lead to better-than-expected net
income results.

Investment Thesis

Goodyear Tire & Rubber Co. (GT) develops, manufactures, and markets highquality automotive tires. Headquartered in the United States, this renowned
company operates in 23 countries and stands as one of the most recognized and
trusted brands among tire manufacturers globally.

Goodyear Tire & Rubber's divestiture of its off-the-road tire (OTR) business
underscores the Company's effective execution of its asset portfolio
optimization strategy. On July 22, Goodyear announced that it had entered into a
definitive agreement to sell the OTR business to Yokohama Rubber for $905
million. This segment generated approximately $0.7 billion in annual revenue,
representing a modest 3.5% of Goodyear's total revenue for the full year 2023. The
deal appears to be a well-planned move, as the OTR business was one of three
assets the Company earmarked for sale to achieve its goal of reducing total debt by
$1.5 billion by 2025. The success of this strategic sale indicates that Goodyear's
debt reduction plan is beginning to yield positive results.

During the second quarter, oil prices remained close to those observed in the
first quarter, a factor expected to assist the Company in reducing its expenses.
Historically, GT's stock chart has exhibited a significant inverse correlation with oil
prices – an understandable trend, considering that crude oil serves as a
fundamental raw material for the production of synthetic rubber and other
essential components for automotive tires. Notably, approximately two-thirds of
Goodyear Tire's raw material costs are influenced by oil prices. The stabilization of
oil prices during the second quarter is a promising indicator, suggesting a potential
alleviation of the pressure on the Company's profit margins.

Goodyear Tire & Rubber's leverage remains a significant concern, but strategic
asset sales could substantially enhance the balance sheet. On November 28th of
last year, S&P Global downgraded Goodyear Tire from 'BB-' to 'B+', citing that the
Company's free operating cash flow (FOCF) might turn negative in 2024 and
extend into 2025. Additionally, ongoing high business process optimization costs
are projected to continue exerting pressure on the Company's margins. By the end
of March, Goodyear Tire & Rubber Co. (GT) reported total debt of $8.26 billion,
down 8.3% year-over-year. Should GT allocate most proceeds from the sale of its
OTR business to debt reduction, its Net Debt/EBITDA ratio for 2024 could
eventually reach 3.0x, and debt service costs could decline by more than 10% in the
upcoming quarters. In the first quarter of this year, debt service costs accounted for
over 50% of operating profit, indicating that debt reduction could significantly
enhance earnings.

We believe that Goodyear Tire & Rubber Co. shares may exhibit positive
momentum following the release of the second-quarter report. We anticipate that
the Company's management will successfully highlight the reduction in leverage
by the end of the year when presenting the results.

Our target price for the Company is set at $13.70, with a Buy recommendation.
We advise setting a stop-loss at $10.60 to mitigate potential risks.