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Why Goodyear Tire Surged 10% After Missing Estimates

By Daniel Miller - Oct 25, 2019 at 4:08PM

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Goodyear Tire missed estimates, but some analysts and investors see a bright side.

What happened

Shares of Goodyear Tire & Rubber Company (GT 0.10%), one of the largest tire companies with facilities and retailers across the globe, are defying the norm as the stock jumped 10% on Friday despite missing top- and bottom-line estimates.

So what

Goodyear Tire reported a 3% sales decline, compared to the prior year, down to $3.8 billion. That top-line result failed to meet analysts' estimates calling for $3.9 billion. Net income in the third quarter dropped to $88 million, down from the prior year's $351 million, but much of that tough comparison was due to last year's $287 million net gain on the TireHub transaction. Adjusted earnings checked in at $0.45 per share, which also fell short of analysts' estimates calling for $0.52 adjusted earnings per share.

A pile of tires

Image source: Getty Images.

So, why is Goodyear Tire's stock moving higher after disappointing results? One reason could be an analyst taking a bullish stance after the earnings release. CFRA analyst Garrett Nelson actually bumped his target price of Goodyear Tire by $3 to $18, noting that after four misses over the past five quarters, investors would "take the miss in stride." Also, the third quarter wasn't all disappointing: There was strong volume growth in China and Brazil, price versus raw materials was positive for the first time in three years, and the U.S. replacement business remained strong.

Now what

On the bright side for investors, Goodyear's comparisons should be easier in the coming quarters, and lower oil prices should further reduce material costs and improve margins. Despite the bullish analyst take, easier comparisons on the way, and lower materials costs, the company will still have to navigate a weaker global light-vehicle production environment -- Goodyear could hit speed bumps, yet.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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