Shares of Goodyear Tire & Rubber (NYSE:GT) are exploding higher on the day, with GT stock up almost 20% on Thursday. At the session high, shares were up almost 30% on the day.
Volume is approaching 30 million shares traded on the day, a one-year high. With the move, GT stock looks likely to string together its third-straight weekly gain.
Driving the gains is a report that Paul Singer’s Elliott Management has taken a stake in the company. It has reportedly “built a 10% position in Goodyear Tire & Rubber Co. and is pushing for asset sales and an operational review.”
The report went on to say that Elliott Management believes “Goodyear should appoint five new independent directors and explore a divestment of its company-owned store network … Making changes could help boost Goodyear’s share price to more than $32, nearly triple its last close.”
In other words, the firm believes Goodyear could unlock more than $20 a share in value. For its part, Goodyear management said it’s willing to meet with Elliott Management to discuss its suggestions.
Elliott Management has made its position known, and it comes just a week after Goodyear reported earnings. For the first quarter, the company delivered a top- and bottom-line earnings miss. That included sub-1% revenue growth and a loss of 29 cents a share on a non-GAAP basis. One can see how activists believe they can help make an improvement.
A Deeper Dive on GT Stock
For investors, GT stock has been a disappointment. The latest earnings report only added to the frustration. That’s particularly true for long-term investors. Some additional color from Elliott Management:
“It is an unfortunate fact for Goodyear and its investors that over the past decade, owning Goodyear stock has been a disappointment … We believe the Company’s poor stock performance is a direct result of its significant margin erosion, suboptimal go-to-market strategy and unfocused brand strategy, which have collectively led to a loss of investor confidence.”
Shares sported a year-to-date of about 15.5% before Thursday’s rally, which is actually pretty solid. But it becomes less impressive when considering that shares hit a 52-week low just three days before the end of the year.
With today’s gain, the stock is up just 9% over the last decade and is actually down 45% over the last five years. That said, GT stock is actually up over 90% in the past three years. However, that was coming off Covid-19 lows.
Even if Elliott is able to get management to accomplish just some of its goals, investors could see big gains. Keep in mind, the 52-week high is up at $15.69, or about 12% above current levels. Even just obtaining half its share-price appreciation objective would send GT stock above $20, a gain of about 50% from current levels.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
