Morgan Stanley Double Upgrades Goodyear Despite A Cautious Sector View

Morgan Stanley is giving Goodyear Tire & Rubber Co (NASDAQ: GT) a double upgrade from Underweight to Overweight, crediting a technological revolution in mobility that may drive growth significant future growth for the bump. 

Miles traveled are at twice historic levels, which bodes well for Goodyear's tire volume and pricing, said Morgan Stanley analyst Adam Jonas. Longer term, Morgan Stanley projects Goodyear will become a transport services company with less cyclical revenue. 

Morgan Stanley raised its price target on Goodyear from $24 to $52. The firm raised EPS estimates on Goodyear by 12 percent for 2018, by 25 percent for 2019 and by 49 percent in 2020. 

“We view tires as entering a period of secular growth. We are not aware of anyone else on the Street who has considered the growth in Vehicle Miles Traveled as directly in GT’s valuation,” Jonas said. 

“As the company continues to delever, we see scope for the group to gradually exit/outsource its manufacturing operations, focusing on higher value added areas of fleet service and distribution where we see a longer term competitive moat."

The uptick in miles is a secular tailwind for tire companies that hasn’t yet been taken into account by other firms, and the demand for tires could eventually exceed supply, according to Morgan Stanley. 

The company is also enjoying improved visibility after securing an NBA jersey sponsorship deal with an NBA finals contender team, the Cleveland Cavaliers. 

At last check, shares of Goodyear were up 7.01 percent at $34.48.

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