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Using Return on Invested Capital as a lens, we take a look at which companies and sub-industries capture the highest returns within the automotive value chain. We calculate ROIC across 27 companies within industries including dealers, OEMs, parts suppliers, aftermarket retailers, and service providers.
Yesterday (5/9/2018), Sears (not covered) announced a partnership with Amazon (c/b S. Mushkin) to sell and install any brand of tire at Sears’ 400+ Auto Center locations. In Feb. 2018, Amazon began carrying Die Hard starters, chargers, and Gold AGM batteries (expensive). Stock reaction was mixed with the group only modestly trailing (+0.5%) the S&P 500 (+1.0%).
On May 2nd, after the market closed, VVV reported FQ2 18 results. Total EBITDA of $122M narrowly met cons/our $121M. Adj. EPS of $0.34 met cons/our $0.34, helped in part by a large buy-back. VVV held its volume and EPS guidance, but narrowed the high-end of its EBITDA range by 2%; however, the annual EBITDA mid-point is still above prior cons. and raw mat headwinds lowered than feared. Today, VVV +5% vs flat S&P 500.
Today (5/2/2018), after the market closed, VVV reported FQ2 18 results. Total EBITDA of $122M narrowly met cons/our $121M. Adj. EPS of $0.34 met cons/our $0.34, helped in part by a large buy-back. VVV held its volume and EPS guidance, but narrowed the high-end of its EBITDA range by 2%; however, the annual EBITDA mid-point is still above prior cons.
We initiated on VVV shares on 3/6/2018 with an Outperform rating and have since had the opportunity to field calls and get out on the road with clients. Our overall take is that VVV remains an under-followed stock a year and a half after its IPO with most investors still taking precursory looks and others negatively disposed due to secular risks. After a tough post spin-off period, we believe most investors are still in wait and see mode. We lay out investor feedback and our response in the pages that follow.
We are initiating on VVV with an outperform rating and a $28 CY ‘18 price target providing 21% upside plus a 1% dividend yield. After lapping a period of underinvestment, insufficient overhead, and a messy pension transition, we believe the high FCF of a consumer products company coupled with formulaic high growth retail and international divisions available at undemanding valuation should make VVV a steady compounder.
Wolfe Research's Auto & Auto Retail Analyst, Chris Bottiglieri, hosted a webcast on his initiation of coverage for Valvoline, Inc.