KeyBanc Capital Markets analyst Saul Ludwig is keeping Cooper Tire & Rubber Co.'s stock rating on "Hold."
As part of his assessment, Ludwig, KeyBanc's managing director, is predicting replacement consumer tire shipments will be down 4% compared to 2007. Comparatively, Cooper will be down 6.8%. Both estimates are more pessimistic than previously announced.
Accordingly, KeyBanc has dropped Cooper's earnings per share estimate for the year from 90 cents to 50 cents, and for 2009 from $1.40 to $1.00.
The times are challenging for Cooper in the near-term, says Ludwig. However, armed with a "very strong balance sheet," Cooper should be able to withstand those challenges.
"One key challenge remains," says Ludwig. "The North American tire market for replacement light truck and passenger tires is about 240 million tires annually. Three large retailers or distributors -- Discount Tire, American Tire Distributors and Wal-Mart -- sell about 60 million tires annually, and Cooper sells virtually no tires to any of them.
"That means that Cooper's addressable market in North America is the other 180 million tires, and of that, Cooper sells almost 40 million tires. So while their share of the total market is about 16%, their
share of the available market for them is an impressive 22%."
On the one hand, it may be difficult for Cooper to gain share on a sustained basis in the years ahead, he says. "On the other hand, Cooper has excellent relationships with its customers.... So Cooper does have a good opportunity to keep the business it has and maybe even capture a little more, but to do so, it cannot flounder the opportunity with poor service or questionable quality."
