Longbow Research's U.S. channel checks over the past 30 days have given the sell-side firm reason to be cautious about Cooper Tire & Rubber Co CTB meeting or beating earnings expectations in 2018, the firm said in a Tuesday note.
The Analyst
Longbow analyst Anthony Deem downgraded shares of Cooper Tire & Rubber from Buy to Neutral with no assigned price target.
The Thesis
Over the past 30 days, greater-than-expected price and volume pressure has been observed in the U.S. channel — a likely indicator of further margin suppression in 2018, Deem said.
Near-term margin risks include greater promotional activity, high inventory, weaker-than-expected production schedules and negative industry shipments, the analyst said.
Longbow lowered its annual price/mix estimates by $15 million, the equivalent of a 23-cent EPS impact.
"Manufacturers in the U.S. are battling for share in a negative market, leading to greater discounting in February-March," Deem said.
Longbow also lowered its 2018 volume estimate in the Americas from 0 percent to negative 2.5 percent on the basis of weaker-than-expected shipments and a more competitive pricing environment.
Other risks include raw material inflation in 2018 and an increasingly imbalanced demand-supply equation in North America, Deem said.
Longbow said it no longer believes Cooper TIre can regain lost market share in the Americas in 2018. A new channel strategy and the ramp of the Chinese GRT plant appear insufficient to offset weaker-than-expected U.S. fundamentals, Deem said.
The Price Action
Cooper Tire & Rubber shares were down about 21 percent over the past year until Monday. The stock was plunging a further 4.5 percent late in Tuesday's trading session.
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