How are energy investors positioned?
On Friday, TD Cowen initiated coverage on Valvoline shares (NYSE:VVV), assigning a Buy rating and establishing a price target of $40.00. The firm expressed a positive outlook on Valvoline’s prospects as a standalone quick lube service provider, highlighting the company’s solid competitive barriers within a favorable industry. Currently trading at $34.47, near its 52-week low of $33.90, InvestingPro analysis suggests the stock is undervalued, with analyst targets ranging from $38 to $48.
The research firm anticipates that Valvoline will experience revenue growth in the low-to-mid-teens percentage range, aligning with the company’s recent performance of 11.85% revenue growth in the last twelve months. This expectation is based on the company’s high single-digit increase in new service center openings as franchisees accelerate their construction efforts. Additionally, Valvoline is projected to benefit from mid-single-digit comparable store sales.
TD Cowen’s analysis further suggests that Valvoline is poised for multi-year growth in EBITDA margins, attributing this to operational efficiencies and scaling benefits. The company’s current EBITDA stands at $508.3 million, with a healthy gross profit margin of 38.37%. The gradual transition towards a franchisee-led growth model is also expected to contribute positively to the company’s financial performance. InvestingPro data reveals 8 additional key insights about Valvoline’s financial health, which is rated as GOOD with a score of 2.95.
According to TD Cowen, these factors combined are likely to result in robust free cash flow (FCF) growth for Valvoline. The firm’s endorsement reflects confidence in Valvoline’s strategic direction and its ability to capitalize on market opportunities.
The initiation of coverage and the establishment of a price target by TD Cowen provide investors with a new analytical perspective on Valvoline’s stock performance and future potential in the quick lube industry.
In other recent news, Valvoline Inc . reported first-quarter earnings that exceeded analyst expectations. The company achieved adjusted earnings per share of $0.32, surpassing the consensus estimate of $0.30. Revenue reached $414 million, beating projections of $396.83 million and marking an 11% year-over-year growth. During the quarter, Valvoline added 35 new stores, contributing to an 8% increase in system-wide same-store sales. The company also saw a 14% rise in system-wide store sales to $820 million and a 14% increase in adjusted EBITDA to $103 million.
In a separate development, Moody’s Ratings revised Valvoline’s outlook to negative from stable while affirming its Ba2 corporate family rating. This change follows Valvoline’s plan to acquire Breeze Autocare for approximately $625 million, a deal that will be financed entirely through debt. The acquisition is expected to close by the end of June 2025, pending customary approvals. Valvoline has committed to suspending share repurchases to focus on repaying the acquisition debt. Moody’s expects the company’s debt/EBITDA ratio to remain above their downgrade trigger until fiscal 2027.
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