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On Tuesday, Morgan Stanley (NYSE:MS) adjusted its stance on Valvoline Inc . (NYSE:VVV), downgrading the stock from Overweight to Equalweight and lowering the price target to $38.00 from the previous $42.00. This move aligns with broader market sentiment, as InvestingPro data shows 10 analysts have recently revised their earnings expectations downward.
The stock currently trades at $36.22, near its 52-week low of $33.86, though InvestingPro's Fair Value analysis suggests the stock may be slightly undervalued. The revision was prompted by a reassessment of the company's expected earnings before interest, taxes, depreciation, and amortization (EBITDA) for fiscal years 2025 and 2026, as well as a change in the valuation multiple applied to the company's projected earnings.
The firm's analysts have revised their EBITDA forecasts slightly downwards, by approximately 1% for fiscal year 2025 and 2% for fiscal year 2026, resulting in figures around $454 million and $531 million, respectively. For context, InvestingPro reports current EBITDA at $419.6 million, with the company maintaining a solid financial health score of 2.65 (rated as GOOD).
Subscribers to InvestingPro can access detailed financial analysis and 8 additional ProTips about Valvoline's performance and outlook. These estimates now sit around 1% below and 1.5% above the consensus figures. Morgan Stanley has also reduced the target valuation multiple to roughly 11 times the projected 2026 EBITDA, compared to the prior multiple of approximately 11.5 times.
The rationale behind the downgrade is rooted in the relative risk/reward balance when compared with other sectors covered by Morgan Stanley. Despite acknowledging Valvoline's robust long-term competitive and margin drivers, the analysts anticipate that fiscal year 2025 will yield below-average growth. They project low-single-digit EBITDA growth for Valvoline in fiscal year 2025, a stark contrast to the 16.5% growth modeled for fiscal year 2024. Factors contributing to this outlook include disinflation, near-term margin pressures, and heightened competition.
The analysts highlight that other industries and companies within their coverage, such as Home Furnishings, Auto Parts, and Home Improvement, appear to be approaching a positive turning point, offering more attractive risk/reward profiles. Valvoline's potential upside and downside are now estimated at roughly 40% and 35%, respectively, with a mere 5% upside to Morgan Stanley's new price target of $38.
Finally, Morgan Stanley views the valuation of approximately 12 times calendar year 2025 enterprise value to EBITDA (excluding pensions) as fair for Valvoline. Current metrics from InvestingPro show an EV/EBITDA ratio of 14.78x and a P/E ratio of 22.26x, with revenue growing at 12.16% over the last twelve months.
For comprehensive valuation insights and access to the detailed Pro Research Report covering Valvoline among 1,400+ US stocks, investors can subscribe to InvestingPro. This valuation reflects a significant premium compared to peers in the Auto Services sector and aligns with levels suggested by regression analysis against high-growth retailers.
In other recent news, Valvoline has reported strong fourth-quarter earnings, with adjusted earnings per share of $0.46 and a 12% increase in revenue to $435.5 million. The company's fiscal year 2024 sales were reported at $1.62 billion. For fiscal 2025, Valvoline projects earnings per share between $1.57 and $1.67, and revenue between $1.67 billion to $1.73 billion.
Several analyst firms have adjusted their outlooks on Valvoline following these results. Stifel has maintained a hold rating on Valvoline, with a target price of $42. Mizuho (NYSE:MFG) Securities and Baird continue to rate the company as Outperform, though Baird reduced its price target to $46. Piper Sandler reaffirmed its Overweight rating on Valvoline, with a steady price target of $44.
In addition to these financial developments, Valvoline plans to open 160 to 185 new stores in the upcoming fiscal year, building on the addition of 158 new stores in fiscal 2024.
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