On Tuesday, JPMorgan updated its stance on Driven Brands (NASDAQ:DRVN), the parent company of various automotive service brands. The firm has maintained its Overweight rating but adjusted the price target to $18 from the previous $19. This revision reflects a valuation based on 10 times the projected 2024 earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).
The analyst at JPMorgan highlighted that despite the price target change, Driven Brands is still considered undervalued, especially when compared to peers like Monro Inc. and Valvoline (NYSE:VVV) Inc., which trade at around 13 and 15 times their projected 2024 EBITDA, respectively. The current stock price hovers near what is considered trough multiples, less than 9 times the 2024 EBITDA estimates.
The firm's analysis suggested that Driven Brands' fourth-quarter report would not be a significant catalyst for the stock in either direction. The issues that previously affected the stock, such as concerns over the quality of its car wash and glass assets, management credibility, and leverage, are expected to continue.
JPMorgan anticipates that it will take several quarters to stabilize the profitability of Driven Brands' domestic car wash operations and restore investor confidence. The fourth-quarter earnings call is not expected to reveal much new information, although management is likely to speak positively about the progress of their turnaround efforts.
Lastly, the report noted that while management at Driven Brands has expressed confidence in completing the integration of its glass services by the end of the first quarter, the real benefits from expanding commercial, fleet, and insurance relationships are projected to materialize later in 2024. The domestic car wash segment, meanwhile, is facing pressures from budget-conscious consumers and increased competition.
InvestingPro Insights
As Driven Brands (NASDAQ:DRVN) navigates the challenges of integrating its glass services and enhancing its car wash operations, a closer look at the company's financial health and market performance provides additional context to JPMorgan's assessment. With a market capitalization of $2.33 billion, Driven Brands showcases a significant presence in the automotive service industry. Despite a negative P/E ratio of -3.39, indicating earnings challenges, the company's revenue growth tells a story of resilience. Over the last twelve months as of Q3 2023, Driven Brands has achieved a robust revenue growth of 21.46%, with a quarterly growth rate of 12.47% in Q3 2023.
The gross profit margin stands at a healthy 40.78%, reflecting the company's ability to maintain profitability amidst operational expansions and market pressures. Moreover, the operating income margin of 13.86% during the same period suggests effective cost management and operational efficiency.
InvestingPro Tips indicate that while Driven Brands' short-term price returns have been volatile, with a 1-year price total return of -50.54%, the company's stock price is currently at 45.12% of its 52-week high, potentially offering a value opportunity for investors considering the long-term growth prospects. For those interested in further insights, there are additional tips available on InvestingPro, and users can take advantage of a special offer using the coupon code PRONEWS24 to get an extra 10% off a yearly or biyearly Pro and Pro+ subscription.
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