Good Years Ahead With Goodyear’s Strong Cash Profile
Summary
- Moody’s Ba2 credit rating on The Goodyear Tire & Rubber Company overstates the company’s credit risk. Valens rates the company four notches higher, as a lower medium investment grade credit.
- GT’s credit risk should be lower, given their stable cash flows, healthy liquidity profile, and robust recovery rate.
- Credit risk is also materially overstated by cash bond markets with a cash bond YTW of 5.227% relative to Valens’ Intrinsic YTW of 3.077%.
Cash Flow Profile
Moody’s is overstating the credit risk of The Goodyear Tire & Rubber Company (NASDAQ:GT) with its Ba2 rating. However, Valens’ fundamental analysis highlights a much safer credit profile for GT. The company’s stable cash flows easily cover all their operating obligations. Moreover, their sizable cash build should allow them to service all obligations including debt maturities in years when their cash flows fall short. Valens therefore rates GT four notches higher at an IG4+ credit rating, or a Baa1 equivalent using Moody’s ratings scale.
Moreover, cash bond markets are materially overstating GT’s credit risk, with a cash bond YTW of 5.227% relative to an Intrinsic YTW of 3.077%.
Valens Credit produces a Credit Cash Flow Prime™ chart for The Goodyear Tire & Rubber Company, as it does for every company it evaluates. The chart provides a far more comprehensive view of credit fundamentals than traditional ratio-based analyses. It shows the cash flow generation and cash obligations related to the credit of the firm, adjusted for non-cash financial statement reporting distortions from GAAP. The blue line indicates the gross cash earnings (Valens’ scrubbed cash flow number) expected to be generated based on consensus analyst estimates and Valens Credit’s own in-house research team. The blue dots above that line include the cash available at that time while the blue triangles indicate that same amount plus any existing, available lines of credit.
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