On Monday, RBC (TSX:RY) Capital adjusted its financial outlook on Driven Brands Holdings Inc. (NASDAQ: DRVN), a North American automotive services company. The firm reduced the price target from the previous $17.00 to $14.00, while continuing to recommend the stock as Outperform.
The reassessment by RBC Capital follows a period of mixed performance indicators for Driven Brands. Notably, the company's maintenance segment maintained solid results, but these were overshadowed by the turnover of the CFO position for the second time in less than a year, and persistent challenges in the U.S. car wash and glass sectors.
Despite the lowered price target, RBC Capital believes that Driven Brands' full-year 2024 guidance remains within reach. However, the firm expressed diminished confidence in the company's ability to meet its adjusted EBITDA target of $850 million by the full-year 2026. As a result, RBC Capital has revised its revenue growth estimates for full-year 2024 to 3.4% and for full-year 2025 to 8.0%, down from the previous projections of 5.5% and 7.8%, respectively.
In light of these revisions, the firm has also adjusted its adjusted EBITDA estimates for Driven Brands, setting them at $553 million for full-year 2024 and $608 million for full-year 2025, a decrease from the earlier forecasts of $558 million and $620 million.
The new price target of $14.00 is based on an 8.25 times multiple of the revised full-year 2025 adjusted EBITDA estimate of $608 million. Despite the adjustments, RBC Capital upholds its Outperform rating for Driven Brands. The firm acknowledges the company's current status as a "show me" story, indicating that the stock may not see significant movement until tangible progress is demonstrated.
InvestingPro Insights
In the wake of RBC Capital's recent reassessment of Driven Brands Holdings Inc. (NASDAQ: DRVN), a closer look at the company's financials through InvestingPro data reveals additional context that may inform investor decisions. The company's Market Cap stands at a modest $1.9 billion, reflecting a cautious market sentiment. This is further underscored by a negative P/E Ratio of -2.49, indicating that earnings are currently not keeping pace with the company's valuation. The adjusted P/E Ratio for the last twelve months as of Q1 2024 deepens this perspective, showing a significant decrease to -39.63.
Revenue growth, a critical indicator of a company's health and expansion potential, has seen an increase of 8.76% over the last twelve months as of Q1 2024. This metric aligns with RBC Capital's tempered outlook, suggesting that while there is growth, it may not be at the pace previously anticipated. On a quarterly basis, the growth is more modest, at 1.74% for Q1 2024. Additionally, the Gross Profit Margin stands strong at 40.82%, which could be a sign of solid operational efficiency within Driven Brands.
InvestingPro Tips highlight that the company's current Price / Book ratio is 2.1, which may appeal to value investors seeking assets potentially trading below their intrinsic value. Moreover, with the recent price total return over one year showing a significant drop of -58.9%, investors might consider the potential for a rebound if the company can demonstrate improved performance and stability.
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