Update: Goodyear Tire Earnings

Jul.31.14 | About: Goodyear Tire (GT)

Summary

Q2 profits jump 18% on strong North American sales and cost-cutting efforts.

Pull-back in share price presents compelling entry point.

Solid operating margins reinforce our thesis of improved operating efficiencies.

Shares of Goodyear Tire (NASDAQ:GT) sold off sharply following second quarter earnings release. Investors appeared to be focused on ancillary macro issues such as weakness in OEM and industrial markets. Headwinds in Latin America continue to pose challenges for GT, particularly in Venezuela.

Similar to the sell-off following Q1 earnings report, we believe investors have once again ignored the progress GT has made in improving operating efficiencies. Evidence of this progress can be seen in expanding operating margins, particularly mature markets such as North America and Europe.

In a previous article published last May, we suggested GT shares could be tempting on any pullback to the $25 area. The stock is now in our buy zone. We will also reiterate that in event of broad market selling pressure (as witnessed Thursday, July 31), we would be looking at $24 as an alternate support level and entry point.

Disclosure: The author is long GT. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.