Goldman Sachs starts coverage on auto services stock with mixed ratings

Goldman Sachs initiated coverage on several U.S. auto service providers, issuing a Buy rating for Valvoline (VVV) with a $45 price target, citing its strong market position and underappreciated refranchising efforts. Driven Brands (DRVN) and Lithia Motors (LAD) both received Neutral ratings with price targets of $20 and $340 respectively, with Goldman citing execution concerns for DRVN and uncertainty in near-term demand for LAD. Mister Car Wash (MCW) was given a Sell rating with a $6.25 price target due to market saturation and increasing competition within the car wash industry.

Analysis

Goldman Sachs has initiated coverage on U.S. auto service providers with a generally cautious outlook, citing concerns around market saturation and execution risks across the sector, while identifying specific companies with strong long-term growth potential. Valvoline (VVV) emerges as a favored pick, securing a Buy rating and a $45 price target, which implies a 31% upside. This optimism is attributed to VVV's status as a "best-in-class operator" in a fragmented, needs-based market, with its recent refranchising efforts seen as undervalued by investors and supported by limited tariff exposure and resilient macro positioning. Conversely, Mister Car Wash (MCW) received a Sell rating with a $6.25 price target, indicating a 7% potential downside, primarily due to perceived saturation in the car wash industry, intensifying competition from new, well-capitalized players, and anticipated challenges from tougher second-half comparisons and potential customer churn following subscription price increases. Driven Brands (DRVN) and Lithia Motors (LAD) were both initiated with Neutral ratings. For Driven Brands (price target $20), while its exit from the U.S. car wash business is viewed positively for simplifying its narrative and improving quality, Goldman Sachs awaits more consistent execution before adopting a more bullish stance, despite a better-than-expected first-quarter result. Lithia Motors (price target $340) faces uncertainty in near-term demand and a broad range of potential outcomes; while pent-up vehicle demand could offer upside, affordability issues and macroeconomic pressures pose significant risks, with a severe downside scenario projecting 2025 new vehicle sales below 15 million units.

Key Decisions for Investors

• Investors may consider Valvoline (VVV) for potential capital appreciation, given its Buy rating, significant upside target, and perceived underestimation of its refranchising strategy.