RBC says Valvoline’s 2026 earnings growth story intact despite mixed Q3

RBC Capital Markets forecasts Valvoline (VVV) is on track for accelerated earnings growth by fiscal 2026, maintaining a $48 price target based on 13 times their 2026 EBITDA estimate. While the firm anticipates a modest slowdown in Q3 same-store sales to 5.6% due to calendar-related headwinds, it expects re-acceleration in Q4 and improving visibility into the company's long-term earnings trajectory, driven by anticipated margin expansion and revenue growth.

Analysis

RBC Capital Markets presents a bullish long-term outlook for Valvoline (VVV), forecasting accelerated earnings per share growth by fiscal 2026 despite anticipated near-term weakness. The firm projects a modest slowdown in third-quarter same-store sales growth to 5.6%, down from 5.8% previously, attributing this to calendar-related headwinds and conservative pricing. However, this is largely viewed as a temporary issue, with projected Q3 adjusted Ebita of $124 million aligning closely with the $123 million consensus estimate. The analysis points to an expected re-acceleration in same-store sales in the fourth quarter as these effects subside. While gross margins face slight pressure from new store depreciation and higher product costs, this is partially offset by improved labor efficiency and a decelerating rate of operating expense growth, which is set to rise 8% year-over-year as technology investments normalize. RBC's confidence is anchored by a $48 price target, representing a valuation of approximately 13 times its 2026 EBITDA estimate, and is supported by favorable transaction volume data from the quick lube channel.

Key Decisions for Investors

• Investors should consider looking through the expected modest slowdown in Q3, as it is attributed to temporary, non-fundamental factors, and instead focus on the clearer path to earnings acceleration in FY26.
• Monitor upcoming earnings reports for a re-acceleration in same-store sales growth in Q4 and for signs of margin improvement from enhanced labor efficiency and normalizing operating expenses.
• Given the stock's 10% year-to-date gain, new or existing positions should be evaluated against RBC's forward-looking $48 price target, which is contingent on the successful execution of its multi-year growth and margin expansion strategy.