Hold Goodyear Tire Shares
The Hold recommendation has been maintained on tire manufacturer The Goodyear Tire & Rubber Company (GT) by Zacks senior auto industry analyst Paul Raman, CFA. Here's what his latest update said:
'The Goodyear Tire & Rubber Company is one of the largest tire manufacturing companies worldwide. Goodyear Tire is benefiting from a major restructuring program along with lower raw material costs and improved selling prices. However, weak tire volumes compel us to rate the shares a Hold with a target of $30.00.
'Goodyear is also bound by an agreement with its union to manufacture all new products (to be sold in North America) at its domestic facilities on a priority basis, subject to capacity availability. This limits the company's scope to outsource production to low-cost countries.
'Further, GT's highly leveraged balance sheet is worrisome. Higher debt levels not only raise the interest burden, but may also raise the company's cost of capital. Additionally, nearly $2.7 billion of debt is variable rate debt, and as interest rates rise, interest costs are expected to rise as well. The company will be required to make contributions to domestic pension plans of approximately $550 - $600 million in 2007, and $200 - $250 million in 2008.
'Currently, shares of The Goodyear Tire & Rubber Company are trading at 17.6x our 2007 EPS estimate of $1.58. We believe the emergence of a healthier balance sheet and noticeably better sales from emerging markets will help earnings. Further, the restructuring initiatives undertaken and the savings from the new labor agreement will boost the future earnings. However, our six-month target price implies a P/E 19X our 2007 EPS estimate.'
Capella Results Sing
Aggressive expansion plans should provide for significant earnings growth in the long term for the online education provider Capella Education Company (CPLA), says Zacks senior analyst Steven Ralston, CFA. We excerpted the followings from his latest research report:
'Capella Education Company is demonstrating robust revenue growth, primarily from strong demand, and by offering new programs and specializations. Also, earnings growth since 2006 has been strong. Management continues to execute well and is implementing an Enterprise Resource Planning (ERP) system in order to improve operational efficiencies.
'Management's growth strategies are to exclusively focus on online education designed for working adults; grow through increasing enrollment and offering new programs and specializations; and increase revenue by implementing annual tuition increases. With a growing acceptance of online education, demand has increased for Capella's programs.
'In addition, Capella University continues to develop selective new programs and specializations for targeted professions, especially in the masters and doctoral programs. The stock' s valuation is stretched but can be maintained as long as earnings are at or above expectations.
