Cooper Tire & Rubber (CTB, Financial) released mixed results as on one hand the company saw good growth in volume and profit while it also struggled due to declining sales. But if we talk about the growth, the higher volume in America along with lower raw material costs drove its margins. However, the major portion of the cash includes sale of 65% interest in its former Chinese venture, CCT. The company is now looking for better operational excellence to see better results in future. In fact there are some bright spots on which Cooper Tire & Rubber is relying. Let us see the key areas where Cooper is seeing good growth opportunities.
A look at the growth drivers
It is seeing China and Asian markets as growth drivers for it in the long term and is now working effectively to add more value to these to strengthen its market presence there. It expects its fully owned facility in China to produce cost competitive passenger car tires that will allow it to grow its sales in China as well as bring good opportunities for exports also. To further add value to it, Cooper is thinking of taking number of other initiatives such as entering an agreement with another supplier, making an acquisition or joint venture or adding a new capacity to its CKT plant. These steps will add wings to its growth strategy.
China’s economy has slowed down which is now favorable. In the next few years, China is expected to become the world’s largest overall tire market. With such growth, Cooper sees great opportunities of growth in the long term as well. To capture this opportunity, Cooper is now focusing on establishing a deeper presence in both replacement and OE markets in future. In addition, Cooper is also bringing in new and exciting products in the market which will further add value to its efforts.
Under this strategic initiative, it has already started making alterations in technology. It has shifted is Asia tech center to a new and larger facility in China this is not enough as the company is about to unveil its new global technical center in Ohio. This will help the company to create new products with improved performance.
Some more positives
Cooper is pleased with the success of its Discoverer line which has been expanded to include the Discoverer A/TW, a tire designed for performance in snow and ice. Further, it is also introducing the Discoverer SRX which is a luxury sport utility tire as well as the Discoverer XT4 tire which is developed specifically for the Canadian market. This seems to be a wise move by the company to raise its performance in the underperforming markets.
Moreover, despite soft performance in the international markets, with a commendable growth in the American market, Cooper is optimistic about its performance in 2015. Furthermore, the tire market in North America is expected to grow at modest levels. However, due to lot of pre-buying activities, Cooper is expecting a soft start to fiscal 2015 but it is confident of gaining momentum in the latter half of the fiscal year.
Conclusion
The stock looks cheap with a trailing P/E of 15.08 while forward P/E of 9.38 shows steady earnings growth. Even the profit margin of 4.35% is also decent and can attract investors. Moreover, the tire market is expected to boom in the coming years which will also uplift Cooper’s performance. So as per investment, I would like to suggest the investors to pick Cooper Tire & Rubber now.
