Persisting Trade Threats Will Depress Margins While Niche Launches Emerge

Key Takeaways

• Persistent pricing pressure from low-cost imports and volatile trade conditions threatens sustainable improvements to margins despite new product focus and possible tariff support.
  
• High debt levels, weak demand, and industry uncertainty constrain earnings growth and limit flexibility for investment in future innovations and premium offerings.
  
• Mounting competitive, cost, and operational pressures are undermining Goodyear's profitability and growth prospects, while challenges in key segments hinder meaningful earnings recovery.

Catalysts

Develops, manufactures, distributes, and sells tires and related products and services worldwide.

• While upcoming new product launches in premium segments and ongoing expansion into high-margin 18-inch and above tire SKUs could improve Goodyear's revenue mix, lingering industry upheaval from global trade disruptions and continued surges in low-cost imports present a structural challenge to regaining meaningful volume growth in core markets.
  
• Although Goodyear is positioned to benefit from potential regulatory shifts such as new tariffs on imported tires in the U.S. and pending EU investigations, the persistent risk of shifting trade flows means tariff advantages may be temporary, and Goodyear may continue to face pricing pressure and inventory volatility, limiting sustainable improvements to net margins.
  
• Despite operational efficiencies being realized through the Goodyear Forward program and cost containment initiatives, weak OEM and replacement demand, compounded by reduced factory utilization and recurring restructuring costs, are likely to keep a lid on operating income and delay margin expansion until industry stabilization, which remains uncertain in timing.
  
• While secular trends such as the growth of global urban vehicle fleets and a larger vehicle parc theoretically support long-term replacement tire demand, ride-sharing adoption, and the shift to lower per-capita vehicle ownership could further reduce industry volumes, undermining the company's revenue base and exacerbating competitive pressures.
  
• Goodyear's ongoing investments in innovation for premium/Electric Vehicle-focused tires and connected solutions could eventually drive new revenue streams; however, the company's already high debt levels, exposure to ongoing raw material inflation, and a slow recovery in global commercial demand are likely to weigh on earnings growth and limit financial flexibility for future strategic pivots.

Goodyear Tire & Rubber Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Goodyear Tire & Rubber compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Goodyear Tire & Rubber's revenue will decrease by 0.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 2.3% today to 2.1% in 3 years time.
• The bearish analysts expect earnings to reach $379.6 million (and earnings per share of $1.32) by about August 2028, down from $429.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from 5.7x today. This future PE is lower than the current PE for the US Auto Components industry at 17.1x.
• Analysts expect the number of shares outstanding to grow by 0.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Goodyear Tire & Rubber Future Earnings Per Share Growth

Risks

• Intensifying competition from low-cost Asian tire imports, especially in the U.S. and EMEA, is eroding Goodyear's market share and forcing price-mix downgrades, putting significant pressure on revenue and gross margins.
  
• High and rising tariff costs-now annualizing to around $350 million with threats of further increases in critical supply geographies like Brazil and Vietnam-are contributing to escalating input expenses, which may not be fully offset by pricing actions and thus threaten net margins and overall profitability.
  
• Recurring global trade disruptions and prebuy behaviors are leading to inventory stockpiles and unpredictable demand patterns, creating volume and factory utilization shortfalls that result in lower revenues and operating income due to unabsorbed fixed costs.
  
• Ongoing restructuring costs, asset divestitures, and manufacturing inefficiencies associated with factory closures are weighing on free cash flow and limiting Goodyear's ability to invest in innovation or defend its competitive position, which has long-term negative implications for earnings growth.
  
• Persistent weakness in core commercial (truck) tire markets, uncertainty around regulatory mandates, and sluggish recovery expectations until at least 2026 are impeding volume recovery and keeping segment operating income at historic lows, thus hampering both near-term and structural improvement in net earnings.

Valuation

• The assumed bearish price target for Goodyear Tire & Rubber is $9.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Goodyear Tire & Rubber's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $9.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $18.0 billion, earnings will come to $379.6 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $8.5, the bearish analyst price target of $9.0 is 5.6% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.