Goodyear Seen Benefiting As Autonomous Cars Double Miles Driven

The advent of autonomous driving will boost Goodyear Tires' (GT) results as vehicles travel more miles, according to Morgan Stanley, which upgraded the stock two notches to Overweight from Underweight. Overweight is the firm's equivalent of a buy rating, while Underweight is the equivalent of a sell rating.

GOODYEAR AND THE DRIVING REVOLUTION: The proliferation of autonomous driving could cause the miles traveled by automobiles to double, wrote Morgan Stanley analyst Adam Jonas. As a result, the number of tires bought each year will rise by two percentage points, the analyst predicted. The increase will "support pricing" and enable price increases to surpass raw material inflation, Jonas predicted. He increased his earnings per share estimates for Goodyear by 12% for 2018, 25% for 2019, and 49% for 2020.

LONGER TERM: As tire makers' debt levels drop, they will be able to cease/outsource their manufacturing operations and focus on "fleet service and distribution," Jonas predicted. Those areas are more impervious to competition and could have "significant financial and strategic value."

TARGET: Saying he was not aware of any other analyst who has incorporated future increases in vehicle miles into their value of Goodyear so directly, Jonas raised his price target on the stock to $52 from $24.

OTHERS TO WATCH: Ford (F), GM (GM), Alphabet (GOOG, GOOGL), and Tesla (TSLA) are all developing autonomous vehicles and related technologies. BlackBerry (BBRY) is partnering with Ford on the development of software and is reportedly developing a security solution for vehicles.

PRICE ACTION: In morning trading, Goodyear jumped 5.6% to $34.03 per share. 
 

Disclosure: None. 

 

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