On Wednesday, Citi adjusted its outlook on Valvoline (NYSE:VVV) shares by lowering the price target to $39.00 from the previous figure of $44.00, while keeping a Neutral rating on the stock. The revision followed Valvoline's fourth-quarter earnings report, which presented a series of challenges including a miss on same-store sales (SSS) and the initial fiscal year 2025 guidance falling below expectations.
The company also announced the re-franchising of 38 stores, an action expected to be dilutive in its first year. During the earnings call, Valvoline's management expressed concerns about the impact of external factors such as waste oil pricing, tariffs, and wage rate inflation on the company's financial outlook for the next three to five years.
Consequently, the decision to establish a new financial algorithm has been deferred until the appointment of a new Chief Financial Officer.
Citi's analyst noted that the stock's recent weakness was justified by the negative earnings revision. The firm's earnings per share (EPS) estimates for Valvoline have been reduced by approximately 7% for fiscal year 2025 and around 11% for fiscal year 2026. Despite the perceived defensive nature of Valvoline in the consumer market, the uncertainty surrounding the company's financial reset poses questions about future earnings projections.
The new price target of $39 is based on an estimated 20 times the fiscal year 2026 EPS, as per Citi's analysis. The firm suggests maintaining a neutral position on Valvoline shares amidst the current financial adjustments and market uncertainties.
In other recent news, Valvoline Inc (NYSE:VVV). has been the subject of a revised outlook from RBC Capital, which reduced its price target from $52.00 to $46.00 due to concerns about the company's long-term growth prospects.
Despite the revised price target, RBC Capital maintains that Valvoline shares are undervalued. The firm also adjusted its fiscal year 2025 and 2026 same-store sales estimates for Valvoline to 5.4% and 6.0%, respectively, and revised the adjusted EBITDA estimates for the same periods to $455 million and $516 million.
On the earnings front, Valvoline reported robust fourth-quarter results, surpassing analyst expectations with adjusted earnings per share of $0.46 and a 12% year-over-year increase in revenue to $435.5 million.
For the full fiscal year 2024, Valvoline reported sales of $1.62 billion, a 12% increase from the previous year. The company also projects 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 terms of 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 aligns with Citi's cautious stance on Valvoline (NYSE:VVV). The company's P/E ratio of 25.97 and Price to Book ratio of 26.84 suggest a relatively high valuation, which may be challenging to maintain given the recent challenges outlined in the earnings report.
Despite these concerns, Valvoline has shown some positive financial indicators. The company's revenue grew by 12.16% over the last twelve months, reaching $1.62 billion. Additionally, Valvoline maintained a healthy operating income margin of 21.96% during the same period.
InvestingPro Tips highlight that Valvoline has been profitable over the last twelve months, which is a positive sign amidst the current uncertainties. However, the stock has taken a significant hit over the last week, with a 1-week price total return of -9.27%, reflecting the market's reaction to the recent earnings report and guidance.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Valvoline, providing a deeper understanding of the company's financial health and market position.
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