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Cooper Tire & Rubber Company (CTB): This Undervalued Tire Company Is Smoking Estimates

The Goodyear Tire & Rubber Company (NASDAQ:GT) has rallied less than 10% over the last year, despite annual EPS in 2012 beating the consensus by over 15% and quarterly EPS beating significantly in Q1 2013. The company warned however that industrial demand remained weak and cited continuing weakness in the European auto market as a drag on sales. Tire sales volume declined 8% for the quarter, and the company continues to cut costs in Europe to offset the decline. The company did maintain its outlook for the year, expecting an operating profit of between $1.4 billion and $1.5 billion.

Valuations and Metrics

Cooper is currently a bargain compared to its prime competitors and the industry. The stock trades at only 7 times trailing earnings, versus The Goodyear Tire & Rubber Company (NASDAQ:GT)’s 13.8 and Bridgestone’s 13.07. The industry average is around 9.6 times trailing earnings. The company’s price to sales is only 0.37 and the operating margin of 9% is quite a bit higher than the 5% industry average. Cooper has an excellent return on equity of 31.43%, and a manageable debt load at under 41% to total equity.

The Bottom Line

Investors are increasingly turning to alternative ways of playing the auto recovery. The often neglected auto parts manufacturing industry offers good growth, with less risk than the traditional auto industry plays. Cooper Tire & Rubber Company (NYSE:CTB) has been growing its top and bottom line impressively over the last few years, which has been reflected in its excellent stock performance. Despite this rally, the stock is still trading at a bargain.

The article This Undervalued Tire Company Is Smoking Estimates originally appeared on and is written by Daniel James.

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