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Goodyear Downgraded Amid Expectations for Lagging Auto Sales

Bullish sentiment toward GT is near a peak among analysts

by 9/7/2011 12:00:04 PM
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Early this morning, Morgan Stanley weighed in on several companies in the automobile industry, cutting its auto sales forecast for 2011-2013 amid a sluggish economy and post-earthquake supply issues in Japan. With this, the brokerage cut its rating on The Goodyear Tire & Rubber Company (GT - 11.40) to "underweight" from "overweight."

Many of the other analysts interested in the Akron, Ohio-based manufacturer disagree with Morgan Stanley's bearish note. In fact, Zacks reports only one lukewarm "hold" suggestion, compared to eight "buy" or better endorsements.

Thomson Reuters places the consensus 12-month price target on the equity at $21.19, representing a rather sizable premium of over 91% to Tuesday's closing price of $11.06. This bullish attitude among analysts could leave GT vulnerable to downgrades and/or price-target cuts, should the shares not live up to expectations.

Elsewhere, there seems to be plenty of negativity surrounding GT. Even though short interest on the security fell by 27.3% over the past month, it still accounts for over 5% of the stock's available float.

Even the options crowd is bearish toward GT. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 2.97 puts for every call on the company. This ratio arrives in the 99th percentile of its annual range -- just one percentage point from a pessimistic peak -- signaling that traders on these exchanges have rarely made bearish bets over bullish at a faster pace during the past year.

Furthermore, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.30 implies that puts outnumber calls among options slated to expire within three months. This ratio ranks in the 93rd percentile of its annual range, indicating that near-term option traders have seldom been more negatively aligned toward GT.

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