1. GOODYEAR TIRE AND RUBBER COMPANY
(NASDAQ: GT)
Analysts
Zhi Cheng (Nicole) Low
Shruti Shah
Sashikanth (Sash) Yenika
Presented on December 1, 2015

2. New Industry for Portfolio Diversification
Screening Process
New Industry for Portfolio Diversification
Piotroski Score = 6
Market Cap.
Mid Cap: 2B – 10B
Altman Z-score = 1.98
Current Price vs. 52w High
= % > -10 %
20Day MA > 200Day MA

3. Company Introduction Business Description Market Cap TTM P/E
Develops, manufactures, and sells tires, and rubber-related products for automotive and industrial applicants
Market Cap
$9.36 Billions
TTM P/E
3.39x
TTM EPS
$10.26
Primary Industry
Tire Manufacturing
Year Founded
August 29, 1898
Global Headquarters
Akron, Ohio, U.S.A
Employees
Approximately 67,000
Sources: Goodyear Official Website and Yahoo Finance!

4. Business Overview and Segments
Goodyear is a tire industry leader with powerful brands, a broad product offering and global distribution
The North America segment is a supplier of tires to manufacturers of automobiles, motorcycles, trucks and aircraft. The EMEA segment is a supplier of tires to vehicle manufacturers across the region. The Latin America segment manufactures and sells automobile and truck tires. The Asia Pacific segment sells primarily Goodyear brand tires throughout the region and also sells the Dunlop brand in Australia and New Zealand.
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.
Sources: Goodyear K, pg. 6-20

5. Global Operating Facilities
EMEA
17 manufacturing facilities in 9 countries
Supplies tires to vehicle manufacturers throughout the region
North America
18 manufacturing facilities
in US and Canada
Supplies tires to manufacturers of automobiles, motorcycles, trucks and aircraft
Asia Pacific
8 manufacturing facilities in 6 countries
Sells primarily Goodyear brand tires across the region
Sells Dunlop brand in Australia and New Zealand
Latin America
6 manufacturing facilities in 5 countries
Manufactures and sells automobile and truck tires
retail outlets for the sale of tires to consumer and commercial customers
Around 50 Manufacturing Facilities in 22 countries
Two R&D facilities and technical centers
Eight tire proving grounds
Approximately 1,200 retail outlets
Around 60 tire retreading facilities, and 170 warehouse distribution facilities.
Sources: Goodyear Official Website

6. Management Analysis Effective corporate governance policies
All directors are independent, except CEO and one labor union-affiliated director
100% independent compensation, audit and nominating committees
Shareholders have the right to call a special meeting at 25%

7. Management’s Strategic Priorities
CURRENT POSITION
INDUSTRY
MEGATRENDS
Growth in emerging markets
Profitable segments in mature markets
HVA (high value added) tires in mid-tier
Green trend
Tire labeling
Internet changing buying behavior
Changes are evolutionary not revolutionary
KEY STRATEGIES
KEY HOW TO’S
INDUSTRY
MEGATRENDS
GT’S DESTINATION
CREATING SUSTAINABLE GROWTH
Sources: Goodyear K, pg 4

8. W O T S SWOT Analysis Strengths Weaknesses Opportunities Threats
Strong R&D
Manufacturing capabilities
Strong market presence
Weaknesses
High leverage ratios S W
Opportunities
New products & services
Business expansion activities
Buoyant demand for automobiles
Threats
Stringent regulations
Intense competition both in price and quality
Appreciation of US$ results in unfavorable foreign currency translation O T
Intense competition, stringent regulations, and moderate global economic growth could have an adverse effect on Goodyear’s business, operating results and financial condition. However, new products and services could present ample growth opportunities to the company.

9. GT’s Three-year Performance Summary
Sources: Goodyear K

10. Stock Market Prospect
Sources: Yahoo Finance!

11. Industry Overview Tire Manufacturing Industry
Major market – USA & Europe
Growing Market – Asia Pacific
Major manufacturing products – motor vehicle and aircraft tires, inner tubes and tire repair materials
Future Industry Outlook
Cater to changing consumer preferences by developing and selling fuel efficient cars
Expansion of product lines and streamlining operations
Industry expected to grow at an annualized rate of 0.8% to $19.4bn by 2020
Sources:

12. Industry Overview Drivers Challenges
Automobiles per household feel from 802 to 797 per 1,000 vehicles
Drivers
Expected stable increase in Automobile production
Increasing demand for advanced tire models
Aging vehicles leading to more demand for replacement tires
Increasing vehicle miles travelled
Challenges
Inconsistency in supply and demand leading to overcapacity
Falling automobiles per household
Sources: & Global Industry Analysts, Inc.

13. Porter’s Five Forces Analysis
Industry Rivalry
(Moderate)
Threat from New Entrants
(Low)
Buyer’s Bargaining Power
Threat of Substitutes
Supplier’s Bargaining Power
(High)
Large capital requirements
High sunk cost
Strong brand name
Economies of scale & updated technology
Very few powerful competitors
Low cost competition from Asian companies
High market grown
High levels of product differentiation
Low concentration of major suppliers
Volatility in prices of major raw materials
Original Equipment (High)
Highly concentrated market
Low switching cost for buyers
Replacement (Low)
High service level & short delivery time
Small size buyers & not concentrated
Essential component
There aren’t any substitutes

14. Macroeconomic Overview
Sources:

15. Macroeconomic Overview
Sources:

16. Comparable Valuation
Sources: CapitalQ and Yahoo Finance!

17. Financial Analysis
Steady increase in profitability ratios despite declining asset turnover led to improved returns
Income tax benefits in 2014

18. DuPont Analysis and Greenblatt Ratios
Greenblatt ratios indicate further room for improvement in efficient use of operating assets
DUPONT ANALYSIS

19. Financial Projections
Revenue projections are made using the average price of raw materials and expected units to be sold
KEY INCOME STATEMENT ITEMS
KEY BALANCE SHEET ITEMS

20. WACC
High leverage and volatility in key economies like Latin America

21. DCF Valuation

22. Implied Price
VALUE PER SHARE
SENSITIVITY ANALYSIS

23. Recommendation: BUY 200 shares At current market price
GT provides diversification benefits to our existing portfolio
Improving margins
High demand from emerging markets
Demand for high-value-added tires with features like fuel saving, wet traction or ride comfort
Dividend yield 0.90%
Current Stock Price: $34.88
DCF Valuation: $37.95
Relative Valuation:$43.26
Target Price: $39.54
Recommendation: BUY 200 shares
At current market price
Stock Price
Stock Price
Strong US$
Economic instability and political unrest in key markets
Sources: Yahoo Finance!

24. THANK YOU! Q&A