Cabot Turnaround Letter Issue: May 28, 2025

Goodyear Tire & Rubber (GT): Finally Gaining Traction

Goodyear Tire & Rubber (GT) is no stranger to veteran subscribers of the Cabot Turnaround Letter. The stock was initially recommended in 2022 and was a long-time holding in the portfolio. I made the decision to sell the stock when I took over as chief analyst last summer, which at the time seemed like a good idea.

Indeed, the stock had been underperforming for quite some time, and management had just warned of “weaker underlying trends in the industry” for the second half of 2024, augmented by lower tire volume and higher costs. The stock dropped 16% to a new 52-week low at that time (early August) and was threatening to break a benchmark “support” level in its long-term chart, while the firm’s debt remained disturbingly high.

Although it took a few months after the August sell-off for Goodyear to “find its legs,” it actually held above that benchmark level and established a strong base over the next few months. More importantly, a number of notable changes within the company occurred in the ensuing months that have finally put the firm on a solid path to a business rebound.

Before we look at those positive developments, let’s start from the beginning of Goodyear’s journey in order to get a clearer picture of where the company has been and where it’s likely headed.

The nearest thing to a “peak” year for Goodyear was 2017, when the stock was trading at a multi-decade high against a backdrop of strong sales, driven by improved pricing and product mix, favorable currency exchange rates and higher tire unit volumes, contributing to overall revenue growth. Although the firm experienced some headwinds in the form of higher raw material costs and weaker demand in some of its markets, it reported positive trends within its industry—particularly in the shift towards high-value-added tires.

By the time 2018 rolled around, however, the trends impacting the tire industry were becoming unfavorable. An economic slowdown in China, coupled with rising input costs (chiefly crude oil and steel), began pressuring Goodyear’s margins.

Then came the tariff war between the U.S. and China, which created even more uncertainty surrounding the tire business. By the fourth quarter of that year, Goodyear’s tire unit volumes were in decline owing to several factors, most notably weakening original equipment (OE) demand in China and India. By then, the stock was already out of favor and had entered a bear market.

Fast-forward to early 2020 when the Covid-era shutdown began and Goodyear appeared to be in its worst shape ever. The pandemic put a significant dent in tire demand while also producing significant disruptions throughout the auto industry and broader economy. By March that year, the stock was near an all-time low as sentiment on the company’s prospects was as dark as it had ever been.

But the old cliché, “It’s always darkest before dawn,” was prescient at that time as Goodyear turned the corner soon afterward and commenced a 20-month rally that brought a five-fold share price increase.

During that sanguine period, Goodyear acquired a major competitor, Cooper Tire, a deal that was consummated in June 2021. But while that merger initially resulted in a boost to Goodyear’s sales and market share that year, keeping the share price rally intact, it also created a considerable debt overhang that would later haunt the company, while contributing to operational inefficiencies in the years that followed and leading to a decline in market cap and relative profitability compared to its peers.

It can be argued that Goodyear’s turnaround prospects formally began to take shape in May 2023, when a major activist investor took a major stake in the firm. It was then that Elliott Investment Management, led by Paul Singer, disclosed that it owned more than 10% of the company’s shares while demanding that Goodyear start taking “critical steps” in executing on its strategy at that time, the “Accelerating Goodyear” plan. (Elliott Management has since exited most of its holdings in Goodyear after realizing a 60% gain that year following its initial demands.)

Things began to look up for the firm even more last year when a new turnaround CEO, Mark Stewart, was appointed following the retirement of long-time Chairman Richard Kramer. Stewart brought a solid background in leading large-scale operational transformations and driving performance improvements across several major industries.

Among them was his stint as COO of North American operations for Stellantis (STLA). It was here that Stewart oversaw a business segment with over 88,000 employees and more than $90 billion in revenue. During his tenure, he led the region’s EV transformation and achieved industry-leading increases in both margin and cash flow, despite challenges like the semiconductor shortage and a highly competitive domestic market for EVs.

Prior to that, he served as Vice President of Customer Fulfillment for Amazon (AMZN), overseeing the company’s 200 North American fulfillment facilities and leading initiatives in automation, AI and robotics, while enhancing efficiency and scalability in Amazon’s logistics network.

All told, Stewart’s track record in revitalizing operations and driving growth should serve him well to lead Goodyear’s initiatives, including the “Goodyear Forward” plan, its strategic turnaround initiative aimed at modernizing the firm’s operations and enhancing shareholder value.

Goodyear Forward was launched in late 2023 and contains four key components, including:

1. A goal of generating over $2 billion in gross proceeds by divesting non-core assets. Among the achievements on this front was the sale of Goodyear’s Off-the-Road (OTR) tire business to Yokohama Rubber for $905 million earlier this year. More recently, Goodyear also sold the Dunlop brand to Sumitomo Rubber Industries for $701 million and the majority of its Chemical business to Gemspring Capital for approximately $650 million.

2. A target of annualized cost savings of $1 billion by the end of this year. To achieve this end, the company has closed certain plants, including the Shah Alam facility in Malaysia. It’s also focusing on improving operational efficiencies across the supply chain, as well as improving R&D and administrative functions.

3. A focus on enhancing revenue; specifically, a goal of achieving $300 million in annual run-rate benefits by optimizing brand positioning, rationalizing SKUs and enhancing premium product offerings.

4. A targeting of key financial metrics, including a doubling of its segment operating income margin from approximately 5% in 2023 to 10% by the fourth quarter of 2025, as well as a reduction of net leverage to between 2.0x and 2.5x.

Already, Stewart has made significant progress in executing the turnaround plan, as shown by the announcement that in this year’s Q1, it realized $200 million in benefits from the transformation initiatives while completing the sale of the OTR tire business. Collectively, these initiatives contributed to a net income of $115 million in the first quarter alone.

Another piece of potentially good news came along recently with the announcement that private investor Dan Hagan (a “whale” investor by all accounts) had initiated a 7% stake (or 20 million shares) in Goodyear. It’s estimated that his investment is worth around $164 million.

Mr. Hagan is previously on record for having owned 10% of the spinoff Jackson Financial (JXN) and evidently realized a substantial return on that investment, which suggests his track record as a turnaround investor is better than average. More importantly, this development could serve as a major catalyst for Goodyear in terms of restoring investor confidence.

A number of analysts believe that Goodyear reached an inflection point in last year’s Q4, which saw a return to profitability and increased segment operating income. It was then that Goodyear reported a net income of $76 million (or 26 cents a share), which was a considerable turnaround from the net loss of $291 million ($1.02 per share) in Q4 2023. (Net profits, adjusted net profits, adjusted operating cash flow and EBITDA all increased year over year for 2024.)

In the wake of those earnings in February, research firm Argus said that after an anticipated “mild start” to 2025, “[They] expect improving growth throughout [the second half of the year]. [They] also expect gradually lower raw material cost inflation, lower capital expenditure spending and declining debt leverage to benefit results throughout the year.”

Additionally, Argus anticipates continuing benefits from the company’s turnaround plan and sees a margin boost from lower-priced tire imports from Asia.

Other Wall Street analysts see a further benefit for Goodyear this year, namely its insulation from tariff impacts. Indeed, the stock got an initial boost in April as investors flocked to it as a potential safe haven against the escalation of the global trade war.

Because the U.S.-based outfit has a strong manufacturing presence domestically, with minimal reliance on production from Mexico and Canada, investors see this as an advantage in terms of protecting it from the trade war’s deleterious effects.

And while tariffs could lead to a reduction in new automobile sales, it’s also expected to increase the demand for replacement tires, which should benefit Goodyear’s sizable footprint in the replacement market.

On a related note, a major investment bank just upgraded Goodyear’s stock to an “Overweight” rating, citing the company’s “improving execution and debt reduction efforts.” The bank further highlighted Goodyear’s advantageous position regarding Section 232 tariffs, which it said should benefit domestic tire manufacturers.

The turnaround plan, meanwhile, is progressing by all appearances. In the latest earnings call earlier this month, CEO Stewart highlighted what he described as a “strong start” to 2025, emphasizing the $200 million in benefits realized under the Goodyear Forward plan, which he said has realized the highest quarterly achievement since its inception. Moreover, he said the plan is facilitating asset sales, with progress on deleveraging and a focus on premium tire segments to maximize profitability.

Stewart further noted conspicuous growth in domestic OE market share, especially in luxury, EV and light truck fitments. He also pointed out the firm’s progress in the 18-inch and greater rim size consumer replacement segment, which he said is a pivotal part of the turnaround strategy.

A final point worth mentioning was the announcement of the launch of the Goodyear Eagle F1 Asymmetric 6, which will expand to 250 SKUs this year, marking the largest ultra-high-performance summer tire offering in company history. Cooper-branded products also “performed well” in retail sellouts during this year’s first quarter.

Of significance, Stewart confirmed that annualized benefits from the Goodyear Forward program are expected to reach $2 billion. And while Goodyear’s turnaround plan is being actively (and, as it appears, successfully) implemented, the full impact of the company’s strategic decisions isn’t yet fully reflected in its financials.

All in all, I see Goodyear as a worthwhile addition to the portfolio for investors with a medium-term outlook.

Recommendations

Purchase Recommendation: Goodyear Tire & Rubber (GT)

200 Innovation Way
Akron, OH 44316
Web Site: https://www.goodyear.com

Symbol: GT
Market Cap: $3.1 Billion
Category: Mid-Cap
Business: Tire Manufacture/Sales
Revenues (2025e): $18.4 Billion
Earnings (2025e): $368.9 Million
5/27/25 Price: 10.95
52-Week Range: 7.27-12.58
Dividend Yield: None
Price target: 15

Background:

GT is an established stalwart that began trading on the Nasdaq in 2012, before which it was traded on the NYSE, dating all the way back to 1927. (Its ticker symbol has remained unchanged over its nearly century-long history as a publicly traded company.)

The stock’s halcyon days were in the 1990s, when it rose from a low of around 9 earlier in the decade to a lifetime high of 75 by early 1998. Shortly after that, the stock began what turned out to be a long-term period of underperformance, marked by a steadily declining share price, which didn’t find its final nadir until 11 years later (at a share price of around 4).

Following the early 2009 bottom, GT commenced a major recovery that took it back up to 36 by 2017 and which, as mentioned earlier, saw the stock establish another major peak against a strong sales backdrop. However, the rosy financial backdrop gave way to turmoil on the sales and earnings front as cost and tariff-related pressures took their tool in the years that followed.

The next bullish phase for GT didn’t come until the pandemic years of 2020 and 2021, with both years witnessing a sizable rebound for the shares (up 400%). This was followed by the underperformance in 2022 to 2024, with last September’s low at around 7.50 followed by a period of solid-looking base building. Tellingly, the stock has etched out a series of higher lows since then, characterized by excellent relative price performance versus many of its industry peers, as well as the broader market.

I view the company as being in the middle innings of its turnaround, as it’s not currently valued like a fully recovered, growth-oriented company, leaving plenty of room for a favorable re-rating should financial results continue improving.

The intermediate-term window for this potential turnaround is roughly six to 12 months. I’m pegging the upside target for this stock at 15 (up 36% from the current share price, if realized).

Analysis:

Although Goodyear’s Q1 2025 results were mixed—it missed estimates on the top line, with net sales of $4.3 billion, and a bottom line that was in line with analysts’ expectations—the company kicked off the year by delivering its strongest quarter to date in benefits from the Goodyear Forward plan. Management said Q1 also saw the advancement of its goal of building a “high-performance culture that is designed to win.”

The top brass further stated its recent sale of the Dunlop brand allowed the company to further optimize its product portfolio, while strengthening the balance sheet, which it said was “a critical component of [their] transformation plan.”

While Q1 revenue was down 6% from a year ago, it’s important to remember that the first three months of the year are typically Goodyear’s weakest quarter from a seasonal perspective, with Q2 and Q3 typically seeing the year’s strongest performance, due to seasonal tire changes and higher auto maintenance trends.

Goodyear said, moreover, that it remains “perfectly positioned and continues to set the benchmark in the industry” and further confirmed that it remains on track to realize its key targets, including segment operating margin of 10% and leverage of 2x to 2.5x by this year’s Q4.

On the debt reduction front, the recently announced sale of a majority stake in Goodyear Chemicals (which produced synthetic rubber) to Gemspring Capital Management will provide Goodyear with $650 million in cash proceeds. It’s expected that this deal could shrink the firm’s pro-forma net debt to $5.8 billion, which is definitely good news since it should help accelerate the firm’s debt reduction efforts.

Across most of its key valuation metrics, the stock receives high ratings compared to its industry peers. A forward P/E of 8.5 looks good versus the sector median of 15.8, suggesting that investors are pricing in lower expectations for the company’s future earnings while offering more potential for future growth.

Meanwhile, a forward EV/EBITDA of 5.15 compares favorably with the sector median of 9.8 (a 42% discount to sector peers), with most of its direct tire industry competitors sporting higher multiples, which further underscores the attractive valuation profile.

All in, while declining revenues remain a concern on a near-term basis, there’s no denying that Goodyear has made worthwhile progress in executing its turnaround plan over the last year or so. The company remains committed to the turnaround strategy, and based on the factors we’ve discussed here, I believe management will ultimately succeed in reaching its key objectives by 2026. BUY

The chief analyst of the Cabot Turnaround Letter does not yet personally hold shares of every company on the Current Recommendations List, but that will change over time subject to the following guidelines. The chief analyst may purchase securities discussed in the “Purchase Recommendation” section or sell securities discussed in the “Sell Recommendation” section but not before the fourth day after the recommendation has been emailed to subscribers. However, the chief analyst may currently hold and may purchase or sell securities mentioned in other parts of the Cabot Turnaround Letter at any time.

Performance

The following tables show the performance of all our currently active recommendations, plus recently closed out recommendations.

Notes to ratings:
1. Based on market capitalization on the Recommendation date.
2. Total return includes price changes and dividends, with adjustments as necessary for stock splits and mergers.
* Indicates mid-month change in Recommendation rating. For Sells, price and returns are as-of the Sell date.
** BNT return includes spin-off value in BAM shares.
*** GE total return includes spin-off value of GEHC shares at January 6, 2023 closing price to reflect our sale.
**** Indicates a partial sell.

The next Cabot Turnaround Letter will be published on June 25, 2025.

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