Valvoline stock undervalued but faces growth headwinds, says RBC

On Wednesday, RBC Capital adjusted its outlook on Valvoline (NYSE:VVV), reducing the price target from $52.00 to $46.00, while retaining an Outperform rating on the stock. The revision follows concerns about the company's long-term growth prospects and the recent announcement of a new Chief Financial Officer.

The RBC Capital analyst cited a healthy underlying business for Valvoline, but noted that comparable sales are slowing and the long-term outlook may be at risk.

Consequently, the firm anticipates that long-term sales growth will be adjusted to 5-7% or mid-single to high-single digits, down from the previous 6-9%. The forecast for adjusted EBITDA growth was also revised to low double digits from the earlier projection of 16-18%.

Following these adjustments, RBC Capital modified its fiscal year 2025 and 2026 system-wide same-store sales (SSS) estimates for Valvoline to 5.4% and 6.0%, respectively. This is a decrease from the prior estimates of 6.3% and 7.0%.

The adjusted EBITDA estimates for the same periods have been revised to $455 million and $516 million, down from the previous forecasts of $495 million and $565 million.

The new price target of $46.00 is based on approximately 13 times the revised calendar year 2026 adjusted EBITDA estimate of $531 million. Despite the lowered price target, RBC Capital maintains that Valvoline shares are undervalued. However, the analyst acknowledges a lack of immediate catalysts that could realize the stock's underlying value in the near term.

In other recent news, Valvoline Inc (NYSE:VVV). reported robust fourth quarter earnings that exceeded analyst expectations, along with a promising outlook for fiscal 2025. The company posted adjusted earnings per share of $0.46 for the quarter, surpassing the consensus estimate of $0.42. Revenue also saw a 12% year-over-year increase, reaching $435.5 million and beating analysts' projections of $432.63 million.

For the full fiscal year 2024, Valvoline reported sales of $1.62 billion, marking a 12% jump from the previous year. The company also witnessed a 6.7% growth in system-wide same-store sales. Looking ahead, Valvoline forecasts fiscal 2025 earnings per share between $1.57 and $1.67, and revenue between $1.67 billion to $1.73 billion, both projections exceeding Wall Street's expectations.

In other company developments, Valvoline added 158 net new stores to its network in fiscal 2024, bringing the total to 2,010 locations. The company aims to open 160 to 185 new stores in the upcoming fiscal year. These are among the recent developments that investors should note.

InvestingPro Insights

Recent InvestingPro data provides additional context to RBC Capital's analysis of Valvoline (NYSE:VVV). The company's market capitalization stands at $4.98 billion, with a P/E ratio of 30.59, reflecting investor expectations despite the recent price target reduction. Valvoline's revenue growth of 12.16% over the last twelve months aligns with RBC's observation of a healthy underlying business, though it may support the analyst's concerns about slowing comparable sales.

InvestingPro Tips highlight that Valvoline has been profitable over the last twelve months, with analysts predicting continued profitability this year. This supports RBC's maintained Outperform rating despite the lowered price target. However, the tip indicating that 7 analysts have revised their earnings downwards for the upcoming period corroborates RBC's more cautious outlook on long-term growth prospects.

It's worth noting that Valvoline's stock has taken a significant hit over the last week, with a 1-week price total return of -9.27%. This recent volatility may present an opportunity for investors who agree with RBC's assessment that the shares are undervalued.

For readers seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Valvoline's financial health and market position.

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