Goodyear Tire & Rubber Co Valuation – January 2019 $GT
Company Profile (excerpt from Reuters): The Goodyear Tire & Rubber Company (Goodyear), incorporated on August 29, 1898, is a manufacturer of tires. The Company operates through three segments: Americas; Europe, Middle East and Africa (EMEA), and Asia Pacific. The Company also manufactures and markets rubber-related chemicals for various applications. The Company also operates commercial truck service and tire retreading centers. The Company manufactures and markets a range of rubber tires for automobiles, trucks, buses, aircraft, motorcycles, earthmoving and mining equipment, farm implements, industrial equipment and various other applications. Its tires are offered for sale to vehicle manufacturers for mounting as original equipment (OE) and for replacement around the world. The Company manufactures and sells tires under the Goodyear, Dunlop, Kelly, Debica, Sava and Fulda brands, and various other Goodyear owned house brands, and the private-label brands of certain customers. In certain geographic areas it also retreads truck, aviation and off-the-road (OTR) tires; manufactures and sells tread rubber and other tire retreading materials; sells chemical products, and provides automotive and commercial repair services and miscellaneous other products and services. As of December 31, 2016, the Company had operated approximately 1,100 tire and auto service center outlets where it offered its products for retail sale and provided automotive repair and other services. As of December 31, 2016, the Company had manufactured its products in 48 manufacturing facilities in 21 countries, including the United States, and it had marketing operations across the world.
Downloadable PDF version of this valuation:
ModernGraham Valuation of GT – January 2019
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $4,795,345,782 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.34 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | -869.49% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 6.77 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 0.98 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 1.34 | Fail | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 3.28 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.04 |
| MG Growth Estimate | -2.98% |
| MG Value | $7.71 |
| Opinion | Overvalued |
| MG Grade | C |
| MG Value based on 3% Growth | $44.05 |
| MG Value based on 0% Growth | $25.82 |
| Market Implied Growth Rate | -0.86% |
| Current Price | $20.58 |
| % of Intrinsic Value | 266.80% |
Goodyear Tire & Rubber Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.79 in 2014 to an estimated $3.04 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 0.86% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Goodyear Tire & Rubber Co revealed the company was trading below its Graham Number of $35.79. The company pays a dividend of $0.44 per share, for a yield of 2.1%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 6.77, which was below the industry average of 19.88, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.53.
Goodyear Tire & Rubber Co receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$24.53 |
| Graham Number | $35.79 |
| PEmg | 6.77 |
| Current Ratio | 1.34 |
| PB Ratio | 0.98 |
| Current Dividend | $0.44 |
| Dividend Yield | 2.14% |
| Number of Consecutive Years of Dividend Growth | 5 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2018 |
| Total Current Assets | $6,753,000,000 |
| Total Current Liabilities | $5,047,000,000 |
| Long-Term Debt | $5,604,000,000 |
| Total Assets | $17,591,000,000 |
| Intangible Assets | $709,000,000 |
| Total Liabilities | $12,591,000,000 |
| Shares Outstanding (Diluted Average) | 238,000,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $2.97 |
| Dec2017 | $1.37 |
| Dec2016 | $4.74 |
| Dec2015 | $1.12 |
| Dec2014 | $8.78 |
| Dec2013 | $2.28 |
| Dec2012 | $0.74 |
| Dec2011 | $1.26 |
| Dec2010 | -$0.89 |
| Dec2009 | -$1.55 |
| Dec2008 | -$0.32 |
| Dec2007 | $2.65 |
| Dec2006 | -$1.86 |
| Dec2005 | $1.16 |
| Dec2004 | $0.63 |
| Dec2003 | -$4.61 |
| Dec2002 | -$7.47 |
| Dec2001 | -$1.59 |
| Dec2000 | $0.31 |
| Dec1999 | $1.53 |
| Dec1998 | $4.03 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $3.04 |
| Dec2017 | $3.27 |
| Dec2016 | $3.99 |
| Dec2015 | $3.35 |
| Dec2014 | $3.79 |
| Dec2013 | $0.99 |
| Dec2012 | $0.18 |
| Dec2011 | $0.01 |
| Dec2010 | -$0.54 |
| Dec2009 | -$0.24 |
| Dec2008 | $0.42 |
| Dec2007 | $0.40 |
| Dec2006 | -$1.30 |
| Dec2005 | -$1.47 |
| Dec2004 | -$2.70 |
| Dec2003 | -$3.70 |
| Dec2002 | -$2.38 |
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Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
