On Friday, RBC Capital Markets adjusted its financial outlook for Driven Brands (NASDAQ: DRVN) stock, increasing the price target to $20.00 from the previous $17.00 while maintaining an Outperform rating. The firm's analyst pointed to an approaching turning point for Driven Brands, citing stable fundamentals, particularly at Take 5, and potential strategic moves by management.
The analyst noted the likelihood of Driven Brands deciding to sell its U.S. car wash business, which is currently under strategic review. Additionally, there's discussion about divesting other non-core assets. These steps are expected to accelerate debt repayment and simplify the business structure. The firm expressed a cautious optimism regarding the future trajectory of Driven Brands.
In light of these developments, RBC Capital revised its revenue growth projections for the years 2025 and 2026 to an increase of 8% and 9%, respectively, a slight adjustment from the previous estimates of 8% and 10%. The adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) estimates for the same years have also been updated to $608 million and $684 million, down from the prior projections of $623 million and $685 million.
The new price target of $20 is based on a multiple of 8.5 times the anticipated 2026 adjusted EBITDA of $684 million, an increase from the previous multiple of 8 times. This valuation adjustment reflects the analyst's revised expectations for the company's financial performance and potential strategic decisions in the coming years.
In other recent news, Driven Brands has displayed a strong performance in its recent earnings report, surpassing expectations in earnings per share (EPS) and EBITDA, despite a minor shortfall in sales. The company 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 adjusted EBITDA figures were $152.2 million, with diluted adjusted earnings per share of $0.35.
Piper Sandler and Canaccord Genuity, both maintained positive ratings on Driven Brands, with Piper Sandler foreseeing a mid-to-high teens EPS growth over the next couple of years. Furthermore, 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.
The company 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. Driven Brands' 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 recent developments that highlight Driven Brands' strategic moves in the automotive services industry.
InvestingPro Insights
Recent data from InvestingPro provides additional context to RBC Capital's optimistic outlook on Driven Brands. The company's market capitalization stands at $2.44 billion, with a price-to-book ratio of 2.58, suggesting a moderate valuation relative to its assets. Driven Brands has demonstrated revenue growth of 4.18% over the last twelve months as of Q2 2024, aligning with RBC's projections for continued growth in the coming years.
InvestingPro Tips highlight potential areas of concern and opportunity. One tip notes that Driven Brands is trading near its 52-week high, with the current price at 92.81% of that peak. This could indicate investor confidence in the company's prospects, supporting RBC's Outperform rating. Another tip points out that analysts have revised their earnings expectations upward, which may reflect the positive outlook on the company's strategic initiatives mentioned in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Driven Brands, providing a deeper understanding of the company's financial health and market position.
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