Goldman Sachs Sees 32% Upside For Goodyear Tire & Rubber

Analysts at Goldman Sachs on Thursday added The Goodyear Tire & Rubber Company (NYSE: GT) to its coveted ‘Conviction Buy List' with a $36 price target.

The analyst, Patrick Archambault, believes that Goodyear's replacement tire exposure is still in the early stages of a recovery. Archambault is forecasting a 3.75 percent compounded annual growth rate in the U.S. over the next three years following a 17 percent decline in the eight years prior.

“The leverage from volume combined with aggressive restructuring actions give us confidence that Goodyear can grow SOI at the top end of its ten percent to fifteen percent annual target for the next several years,” Archambault argued in his note on Thursday.

Archambault's decision to add Goodyear to the Conviction Buy List is based on volume data that has significantly ramped up over the quarter. Data from rival Michelin point to a market growth of six percent in the current quarter which is a bullish sign for the industry as a whole.

As well, raw material prices have moderated recently and are down nine percent from a year ago. A decline in natural rubber (a main component of a tire) has more than offsets a slight uptick butadiene prices.

Based on the above factors, Archambault bumped up his 2014 EPS estimates to $3.19 from $2.96 while 2015 EPS estimates were also raised higher to $3.88 from $3.62.

Shares of Goodyear traded to new 52-week highs of $28.48 on Thursday before slightly pulling back to the $28.10 level.