Why Cooper Tire's Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of tire giant Cooper Tire & Rubber (NYS: CTB) were skidding off the ticker tape today, falling as much as 11% in intraday trading, after the stock was downgraded.

So what: Cooper Tire shareholders can send flowers and thank-you letters to KeyCorp analyst Brett Hoselton, who downgraded the stock from buy to hold, pointing out the looming expiration of tariffs on Chinese tire imports. With the tariff set to go away on September 26, Hoselton expects that Cooper will have to lower prices 10% to 15% to respond to competitors. For obvious reasons, that's not great for the bottom line.

Now what: Hoselton's perspective seems to be very reasonable, particularly when you consider the fact that Cooper Tire's stock, even after today's drop, is up nearly 100% from a year ago. On the other hand, the stock trades at under 15 times 2011 earnings per share, and less than eight times expected 2012 EPS. The latter ratio could rise if other analysts get on the same page as Hoselton and lower their expectations for the company's full-year earnings, but it seems like a lot of pessimism may already be built into the stock price.

As with any analyst call, it's important to remember that this is just the opinion of one person. For that reason, I find it questionable whether a 10% revaluation was really in order. However, investors certainly shouldn't ignore this warning -- if you own Cooper Tire, or have it on your radar, you'll want to make sure you have the tariff impact factored into your own expectations.

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The article Why Cooper Tire's Shares Plunged originally appeared on Fool.com.

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