Please ensure Javascript is enabled for purposes of website accessibility

Why Goodyear Tire & Rubber Co's Shares Popped 10% in September

By Travis Hoium – Oct 6, 2016 at 10:19AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could the future be bright for this tire giant?

Image source: Getty Images.

What happened 

Shares of tire maker Goodyear Tire & Rubber Co (GT -0.40%) jumped 10.1% in September after the company outlined growth plans for the rest of the decade. 

So what

At an investor meeting, Goodyear said that it plans to increase annual segment operating income to $3 billion by 2020 and generate cumulative free cash flow of $4.3 billion to $4.9 billion between 2017 and 2020. That's incredibly strong performance when compared to the company's $8.6 billion market cap and $5.7 billion in debt on the balance sheet. 

Management also said it would spend $4 billion on a combination of capital expenditures, restructuring, debt repayment, and returns to shareholders. To that end, the dividend was increased to 10 cents per share, which will be payable to shareholders of record on November 1, 2016. 

Now what

The tire business may not be terribly exciting given everything that's going on in automobiles today, but it's still very consistent. Whether people are driving cars, trucks, or electric vehicles -- or using a ride sharing platform -- they all need tires. And Goodyear is optimizing its business to take advantage of industry trends, like complex large rim tires. This may just be one month's performance, but Goodyear is well positioned to generate strong returns and cash flow in the next five years, which I think will continue to drive the stock higher. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.