Goodyear Tire & Rubber: A Contrarian Bet in a Post-Deleveraging Industrial Sector

The industrial sector in 2025 is a study in contrasts. While many companies grapple with the lingering effects of deleveraging and supply chain fragility, Goodyear Tire & Rubber Company (GT) stands out as a case of strategic reinvention. For contrarian investors, the question is not whether Goodyear is in trouble—but whether the market is undervaluing a company that has already taken bold steps to reposition itself for long-term resilience.

A Transformation Built on Pragmatism

Goodyear's “Goodyear Forward” plan, launched to stabilize its balance sheet and refocus its portfolio, has delivered measurable progress. By the first quarter of 2025, the company had generated $1.64 billion in cash from the sale of its Off-the-Road (OTR) tire business and the Dunlop brand. These moves have reduced its net debt by 20% since 2022 and brought its net debt/EBITDA ratio down to 2.1x—a critical improvement in a sector where leverage often stifles growth.

The proceeds are being reinvested in operational efficiency. A $500 million investment in Goodyear's Lawton, Oklahoma plant, for example, is adding 10 million units of premium tire capacity, targeting high-margin segments. Meanwhile, cost-cutting measures—such as the 850-job reduction at its Virginia facility—are expected to boost operating income by $65 million annually. These actions have already delivered $200 million in Goodyear Forward benefits in Q1 2025, with $1.5 billion in annualized savings still on the horizon.

A Cost Advantage No One Else Has

Goodyear's positioning in the U.S. market is its most compelling edge. The company's exposure to U.S. Section 232 tariffs—which impose a 25% duty on non-USMCA-compliant tires—creates a 10.5 percentage-point cost advantage over rivals. While 55% of U.S. tire imports face tariffs, only 12% of Goodyear's domestic sales are impacted. This structural edge allows the company to maintain pricing power in a market where margins for imported tires are under pressure.

This advantage is not lost on analysts. BNP Paribas upgraded Goodyear to “Outperform” in 2025, citing its 232 tariff tailwind and deleveraging progress. The firm's $15 price target implies an 8.5x 2026 EBITDA multiple—a 17% discount to Michelin's 10.2x valuation. For a company with a 125-year history of innovation, this gap feels like a mispricing.

Valuation: A Discounted Legacy in a High-Demand Sector

Despite Goodyear's strides, the market remains skeptical. The stock has underperformed the S&P 500 by 2% year-to-date, with a trailing P/E of 13.0 versus the industry median of 12.9. However, this apparent parity masks a key detail: Goodyear's forward P/E is a mere 7.7, reflecting consensus expectations of $0.14 per share in Q3 2025. If the company meets or exceeds this target, the stock could see a re-rating.

The risk, of course, is that the Q2 2025 earnings miss and subsequent 1.4% stock drop signal deeper issues. But for contrarians, this volatility is a feature, not a bug. Goodyear's operating margin of 4.5% in Q1 2025 is still far below its 10% target, but the path to get there is clear: asset sales are done, cost cuts are underway, and the U.S. replacement tire market—where Goodyear holds a 19% share—is growing at 3% annually.

A Contrarian Case for Resilience

Goodyear's detractors will point to its Q2 loss of $0.04 per share and the Earnings Estimate Revisions Grade of 38 (a “Negative” rating). But these metrics overlook the company's structural strengths. Unlike peers such as Bridgestone or Pirelli, which are saddled with higher debt and less U.S. exposure, Goodyear is leveraging its domestic footprint to outmaneuver rivals. Its 10.5% cost advantage from tariffs alone could generate $250 million in incremental EBITDA annually—a figure that dwarfs its current net interest expense.

For investors willing to look beyond short-term volatility, Goodyear represents a rare combination of:
1. Deleveraging: A debt load that's shrinking, not expanding.
2. Margin expansion: A unique cost structure that insulates it from global inflation.
3. Valuation discipline: A price-to-earnings ratio that's below peers, with a path to earnings acceleration.

The Risks of Being Right

This is not a risk-free bet. Goodyear's EMEA segment still posted a $5 million loss in Q1 2025, and its Dunlop brand sale leaves a void in the European premium tire market. Additionally, the company's reliance on the U.S. market (which accounts for 60% of its revenue) makes it vulnerable to shifts in consumer spending or policy reversals on Section 232.

However, for investors with a three- to five-year horizon, these risks are manageable. The key question is whether Goodyear can maintain its cost discipline and execute its $1.5 billion in annual savings. If it does, the company's current valuation—trading at a 40% discount to BNP Paribas' target—offers a compelling margin of safety.

Final Take

Goodyear is not a glamour stock. It's a company in the messy middle of a transformation, with a stock price that reflects its challenges. But for contrarians, this is precisely what makes it attractive. In a sector where deleveraging has become the norm, Goodyear's strategic clarity, structural cost advantages, and disciplined capital allocation position it as a long-term winner.

The market may not be paying attention now—but when the replacement tire cycle heats up and Goodyear's margins close the gap to its 10% target, those who bought at the bottom will be the ones smiling.