On Friday, Piper Sandler showed confidence in Driven Brands (NASDAQ:DRVN) stock by increasing the price targe to $19.00, up from the previous target of $17.00. The firm maintained its Overweight rating on the automotive services provider. The adjustment followed Driven Brands' third-quarter earnings report, which revealed a strong performance in earnings per share (EPS) and EBITDA, surpassing expectations despite a slight shortfall in sales.
The company's Take 5 Oil Change business was a standout, posting a 5.4% comparable sales increase. Piper Sandler noted that while sales trends have been generally sluggish, margins have shown a significant recovery from the previous year's downturn. The EBITDA margin improved by 226 basis points year over year. Two segments that had previously been underperforming, U.S. Car Wash and Glass, are now showing signs of fundamental improvement.
The analyst expressed some skepticism regarding Driven Brands' ability to fully divest its U.S. Car Wash segment. However, it was acknowledged that the car wash segment is now experiencing year-over-year EBITDA growth. The report also highlighted Driven Brands' robust cash flow, bolstered by divestitures and sale-leaseback transactions, which could pave the way for reduced interest expenses in the forthcoming two years.
In conclusion, Piper Sandler's commentary underscored the potential for Driven Brands to achieve mid-to-high teens EPS growth over the next couple of years, presenting a positive outlook for the company's financial performance.
In other recent news, Driven Brands reported a modest 1% increase in revenue to $612 million in its Q2 2024 earnings call, attributed to the addition of 115 net new stores and a 0.5% rise in same-store sales. The company also revealed adjusted EBITDA figures of $152.2 million, with diluted adjusted earnings per share of $0.35. Additionally, Driven Brands sold its Canadian distribution business, operating under the PH Vitres d'Auto brand, to PGW Auto Glass, with the proceeds expected to be used for debt reduction.
Canaccord Genuity maintained a Buy rating on Driven Brands and increased the price target to $20.00 from the previous $19.00, following a survey of 110 Driven Brands locations. The firm believes that Driven Brands' stock multiple has room to grow once the company addresses the issues within its capital-intensive businesses or finds a way to monetize those assets.
Driven Brands also adjusted its full-year outlook, targeting revenue between $2.35 billion and $2.45 billion and adjusted EBITDA at the mid to upper end of $535 million to $565 million. The company's focus on reducing debt was evident as it aims for a leverage ratio of less than 4.5x by the end of 2024. These are some of the recent developments that highlight Driven Brands' strategic moves in the automotive services industry.
InvestingPro Insights
Recent data from InvestingPro adds depth to Piper Sandler's optimistic outlook on Driven Brands (NASDAQ:DRVN). The company's market capitalization stands at $2.44 billion, reflecting its significant presence in the automotive services sector. Driven Brands has demonstrated a solid revenue growth of 4.18% over the last twelve months as of Q2 2024, aligning with the analyst's observations of the company's performance.
The company's gross profit margin of 41.13% and operating income margin of 12.8% for the same period underscore its ability to maintain profitability, supporting Piper Sandler's note on margin recovery. These figures provide context to the 226 basis point improvement in EBITDA margin mentioned in the article.
InvestingPro Tips highlight additional aspects of Driven Brands' financial health:
1. The company has demonstrated strong revenue growth over the past year, corroborating the article's mention of surpassing earnings expectations.
2. Analysts predict the company will be profitable this year, aligning with Piper Sandler's projection of mid-to-high teens EPS growth.
These insights from InvestingPro complement the article's analysis, offering readers a more comprehensive view of Driven Brands' financial position. For investors seeking a deeper understanding, InvestingPro offers 12 additional tips for DRVN, providing a broader perspective on the company's potential.
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