It is not surprising that tire industry analysts are re-evaluating the stock of Cooper Tire & Rubber Co. following the termination of its "merger agreement" with Apollo Tyres Ltd. on Dec. 30, 2013. Nick Mitchell, senior vice president for Northcoast Research Partners LLC, is no exception.
In light of the decision, Northcoast says it is downgrading its shares of Cooper from "Buy" to "Neutral" and cutting its estimates to reflect a "deterioration in fundamentals" in the followng:
1. the company's North American Tire Operations, and
2. the ongoing labor issues at Cooper Chengshan (Shandong) Tire Co. Ltd. in China (Cooper Tire owns 65% of this joint venture).
Mitchell estimates Cooper's total revenue for 2013 will be $3.5 million, or 16.6% less than last year, when the company reported record net sales of $4.2 billion. (Cooper has yet to file its third-quarter financial results, which is another reason for the downgrade.)
"Given these factors, along with the company's decision to postpone exploring other options to enhance shareholder value -- including allocating capital toward acquisitions, share repurchase programs and higher dividends, or finding another potential suitor -- until the obstacles at (Cooper Chengshan) are resolved and 3Q '13 earnings are filed, we think investors are best suited to remain on the sidelines..
