Cooper Tire & Rubber Co. Is A True Value Pick

| About: Cooper Tire (CTB)

Cooper Tire & Rubber Co. (NYSE:CTB) is a replacement tire maker that became a Zacks No. 1 Rank (Strong Buy) on Oct. 10. There is currently a rumor that the company is in the process of being acquired, but earnings estimates have been trending higher for several months. With a price-to-sales (P/S) ratio of just 0.3, this stock is a true value pick.

Robust Growth in Second Quarter

On Aug. 9, Cooper Tire & Rubber reported a more than fourfold increase in profits to $51.7 million for the second quarter, compared to $11.5 million a year ago. This was the company’s 12th straight quarter of profitability. Earnings per share of 82 cents surpassed the Zacks Consensus Estimate by 64%.

The improvement in profits was mainly due to lower raw material costs. Other factors helping bottom line growth included higher sales volumes, improved manufacturing efficiencies, and lower product liability costs.

Revenues increased 15% to $1.1 billion, driven by higher sales volumes in the North American and International operations. Sales in its North American Tire division grew 16%, while sales in the International Tire unit went up 6%. Cooper Tire & Rubber believes product innovations, cost reduction measures, falling raw material costs, and profitable investments will boost its earnings, despite the headwinds in the tire industry.

The company will report its third-quarter results on Nov. 2. The Zacks Consensus Estimate is currently at 87 cents per share, or about 11.5% higher than three months ago.

Earnings Momentum Advancing

The Zacks Consensus Estimate for 2012 is up nearly 14% in the past three months to $2.56 per share, including an increase of 1.6% in the past seven days. As for 2013, the Zacks Consensus Estimate of $2.99 is up almost 13% in 90 days and 4.5% in the past week. The estimates for 2012 and 2013 reflect year-over-year growth of 113.5% and 16.6%, respectively.

Attractive Value

Shares of Cooper Tire & Rubber have been rising since October last year. It reached a 52-week high of $23.40 on Sept. 14, 2012. The expanding gaps between the 2011, 2012, 2013, and 2014 estimate lines should entice investors.

In addition, Cooper Tire & Rubber has strong value characteristics. Apart from a low P/S, it is currently trading at a forward P/E multiple of 7.3 and a P/B multiple of 1.5. (A P/S ratio lower than 1.0, a P/E below 15.0 and a P/B ratio under 3.0 generally indicate value.) Moreover, the company has a one-year ROE of 18.2%, which is in line with the peer group average. It also has a PEG ratio of 0.96, which is less than one and indicates that the stock is reasonably valued given the expected growth.

Founded in 1913, Cooper Tire & Rubber Co. manufactures tires and related products for passenger vehicles and light trucks. The $1.2 billion company has more than 60 manufacturing, sales, distribution, technical, and design facilities located in 10 countries across the globe. It is the ninth largest tire company in the world and the fourth largest in the U.S.