For many of us out there, 2020 was the year we drove a lot less. Even if we didn't drive that much to begin with, the fact that work was closed or went wholly remote, retail did likewise, and a host of other options were temporarily or intermittently forbidden to us meant that we put less mileage on cars and, accordingly, on our tires. With used car sales seemingly making a comeback, Keybanc put out a new report that gave one big part of our cars a little extra life: Goodyear Tire and Rubber Company (NYSE:GT).
The Rubber Met the Road and Found It Welcome
Keybanc's upgrade, taking the tire producer from “sector perform” to “outperform”, focuses mainly on the company's likelihood of improvement. Keybanc expects sales to improve, and additionally, profits to improve as well. Some might call that a redundant outlook, but not necessarily; it's possible to improve profit margins in ways that don't come from improved sales, mainly by addressing expenses.
Moreover, Keybanc also expects gains in the company's price per share, and has raised its price target accordingly to $14 per share. Given that the company currently trades at $11.38, it's a safe bet that further gains are in the cards for the near-term. Reports suggest that trading volumes have been brisk—one report noted a daily trading volume of 2.67 million shares—which suggests the possibility of further gains again as more investors come into the Goodyear fold.
Skidding on the Market's Wet Pavement
As encouraging as the news out of Keybanc is for those who either currently hold or are looking to buy Goodyear, the broader analyst community looks quite a bit less certain. Our latest research notes that not only is Goodyear currently considered a “hold”, but it's been considered as such for the last six months. Moreover, only recently, the average picture has worsened substantially for Goodyear.
Goodyear currently holds an aggregate rating made up of one “sell” rating, six “hold” and four “buy.” That “sell” is actually new in the last month, as it hasn't been seen at any other point in the last six months. In fact, before today, the aggregate was made up of seven “hold” and four “buy” going all the way back to six months prior.
The price target, meanwhile, has been fluctuating slightly, but only recently took its biggest drop. Price target movement was comparatively minor for most of the last six months—it went from $10.61 to $10.28 to $10.50—but in the last month, it dropped to a consensus of $9.39 per share. When the biggest drop was around $0.33 per share, but then suddenly losing over $1, something has clearly gone awry.
Banking on a Movement
It's clear to see why there's newfound optimism for a tire provider. If things go the way they're hoped to in 2021, with fewer lockdowns, more movement and more consumer spending, they're going to need tires on their cars. The recent gains seen in the used car sector lends a bit of credence to that as well; used cars don't often come with new tires, so replacements tend to follow.
However, there are some points that weigh on this assessment. The first is the belief that normalcy—as measured by 2019 standards—will reassert itself. That's possible, but so is the converse, and to what extent either will happen we simply don't know as of yet. Should we find ourselves continuing in a locked-down, nothing's-open stance, our need to drive will be limited by a lack of options.
Further, we don't know much about the impact of 2020 on 2021. We know that a host of small businesses were permanently shuttered by the intermittent lockdowns of 2020, and how many of those businesses will even come back to greet 2021 is as yet unclear as well. Just because they're allowed to reopen doesn't mean they will. To round it out, Goodyear competes in a market full of tire possibilities, from Firestone (OTCMKTS:BRDCY) to Michelin (OTCMKTS:MGDDF) and beyond. Just how much of the resurgent tire market share Goodyear would get is likewise unclear.
Here, it may be the best idea to follow the consensus. Take a step back, see how 2021 shapes up, resolve some of the outstanding questions and then, perhaps, buy in. It's certainly priced attractively—any stock that's priced like a large pizza makes a case for picking up at least a few shares just to cover the bases—and with a very real case for future profitabilityto come, making the investment now could be a smart move.
