Wall Street Coverage on Driven Brands (DRVN) Mostly Positive, Piper Sandler Says Company Positioned for Long-Term Growth

The Street initiated coverage of automotive services company Driven Brands (NASDAQ: DRVN) with mostly positive ratings Tuesday. Analysts at Piper Sandler, William Blair, Credit Suisse, Baird, BofA, and JPMorgan are among those that rated DRVN with a "Buy" or equivalent rating. Barclays, Goldman Sachs, and Morgan Stanley rated shares "Hold" or equivalent.

Piper Sandler analyst Peter Keith initiated the coverage with an "Overweight" rating and a $37 price target. He believes the company is well-positioned due to:

(1) strong diversification across multiple areas of auto service,

(2) asset-light model, with >80% of units franchised, and

(3) positioning in an industry with non-discretionary, recurring-revenue features.

“Long-term, DRVN has an attractive growth algo, calling for LT EBITDA growth of 11% (which appears conservative), and EPS growth that should trend higher due to healthy FCF generation (and debt pay down). For valuation, we expect DRVN will trade generally in-line with other franchised Consumer companies given the steady, compounding nature of its sales and EPS growth,” Keith wrote in today’s note sent to clients.

The stock can also be seen as a recovery play amid the Covid-19 pandemic.

“While COVID has been a negative disruption to the industry, as working from home has been adopted and commute miles are below 2019 levels, DRVN's same store sales are tracking to down slightly in 2H 2020 vs. -19% in Q2 2020. Looking forward, DRVN comp growth should rebound nicely as commuting (and miles driven) recover, and the company continues to take market share from smaller players,” adds Keith.

On the other side, Morgan Stanley analyst Simeon Gutman believes DRVN is “fairly valued” at a current market price ($32.25), hence the “Equal-weight” rating. Overall, he likes DRVN as a growth idea.

“The automotive services segment is a steady 3-4% grower that is at least 70% fragmented across DRVN's key verticals of Car Wash, Vehicle Maintenance/Quick Lubes, and Paint/Collision/Glass. DRVN's service businesses are durable,have great cash-on-cash returns (averaging 40-60%) and face little e-comm risk.

“DRVN's steady and durable growth is wrapped in a highly franchised/independent model (~83% of units & system sales), with potential for the franchise mix to increase over time. Higher franchise penetration would likely drive EBITDA margin upside and multiple expansion in the future,” the analyst wrote in a research note sent to clients today.

However, the price target of $30.00 reflects the belief that the stock seems fairly priced at ~21x EV/EBITDA, according to Gutman.

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