Valvoline Gets Analysts' Engines Revving, Citi Initiates At Buy

Citi has begun coverage of Valvoline Inc VVV with a Buy rating and target price of $27 citing strong brand recognition, revenue and margin upside from mix shift, international growth opportunities and potential for bolt-on acquisitions.

Valvoline, which is 83 percent owned by Ashland Global Holdings, is a leading global finished lubricants maker, generating annual revenues of $2.0 billion. The company went public in an IPO on September 23, 2016.

“Given (i) our CY17 EPS estimate of $1.22, (ii) the ~17x market multiple on Citi’s estimate of the S&P 500's 2017 EPS, and (iii) our belief that VVV should trade at a 30 percent premium to the market multiple, we derive our $27 target price,” analyst Wendy Nicholson wrote in a note.

Related Link: Valvoline Is A Solid Business, But Upside May Already Be Priced In

Nicholson noted that the company benefits from stable demand and solid cash flows. Further, the shift to premium products would boost revenue and margins, while the franchise model generates high return on investment.

On the flip side, the analyst said risks include “(i) EPS sensitivity to oil prices; (ii) Sustainability of above-average same store sales trends for Quick Lubes; (iii) Customer concentration and high level of competition for DIY products; (iv) Large pension liability and the potential impact on earnings; and (v) Overhang of Ashland (ASH) ownership.”

The analyst expects EPS of $1.24/$1.19/1.26 for 2016/2017/2018, respectively.

Shares of Valvoline closed Monday’s trading at $23.11 and were down 0.65 percent at $22.96 at last check Tuesday.

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