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Investing.com-- Morgan Stanley (NYSE:MS) analysts have a positive outlook for Japan’s tyre sector, citing potential shareholder return catalysts as key drivers for stock performance despite weak demand trends, and muted earnings.
The brokerage highlights Toyo Tire & Rubber (TYO:5105) and Bridgestone Corp. (TYO:5108) as companies to watch ahead of their upcoming earnings, where dividend hikes and share buybacks could serve as upside triggers.
Toyo Tire, which will report on February 14, has signaled a willingness to enhance shareholder returns. If the company announces a dividend increase and a share buyback program, this could serve as a positive catalyst for its stock, Morgan Stanley analysts said in a research note.
The brokerage sees a 40% probability of Toyo raising its fiscal 2025 dividend forecast to 120 yen per share from 115 yen, and initiating a 15 billion yen buyback, which could boost the stock by 8%. In its base case, the firm expects only a dividend increase, potentially lifting shares 5%.
Bridgestone, Japan’s largest tire maker, is due to report earnings on February 17.
Morgan Stanley expects a modest increase in fiscal 2025 profit guidance but notes that the company’s capital allocation strategy could be a more important factor for investors.
Analysts assign a 30% probability to Bridgestone announcing a 150 billion yen share buyback and raising its dividend to 220 yen per share, which could lift shares 8%.
Both companies face lackluster demand in the global tire market, limiting earnings-driven stock price gains. However, Morgan Stanley highlighted that any surprise buyback announcements could significantly improve sentiment toward the stocks.