UPDATE: Jefferies Upgrades Valvoline (VVV) to Buy, Sees $65 Share Price in 3 Years
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Jefferies analyst Laurence Alexander upgraded Valvoline (NYSE: VVV) from Hold to Buy with a price target of $40.00 (up from $25.00) on the belief that a resurgent US consumer, ongoing industry consolidation and elevated peer multiples should help Valvoline outperform over the next 12-18 months. Longer term, international expansion and layering in alternate service models should provide call options that should mitigate concerns over the longer-term transition away from ICEs.
He stated "Capital Deployment Opportunities Could Lift Shares: We forecast ~$5.45/share in
cumulative FCF before growth capex and dividends on average in 2021-2023.
Incremental EBITDA growth could add another ~$2.10/share in balance sheet flexibility.
Assuming a 1.5% dividend yield, and the balance split between deployments in Quick
Lubes, other growth opportunities and buybacks, we estimate Valvoline could add $1.00-
$1.50/share in EPS by 2025, even before layering in growth on the current asset base.
We estimate cyclical leverage could bring EPS of $3.25-$3.50/share within reach by 2025
barring an economic slowdown. This would probably suffice to support a share price >
$65, for a ~35% total return CAGR."
Shares of Valvoline closed at $27.21 yesterday.
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