On Thursday, Wolfe Research adjusted its outlook for Mister Car Wash Inc. (NYSE: NYSE:MCW), increasing the price target to $9.00, up from the previous $8.00, while maintaining an Outperform rating on the company's shares.
The firm's analysts highlighted the car wash company's growth strategy, which is centered on expanding its number of stores and leveraging its subscription model that offers steady revenue through customer retention.
Although there are concerns about competition and a slowdown in membership growth in the short term, the firm believes the company's valuation is fair. It also anticipates possible benefits to earnings from adjustments in pricing and service mix over time.
Wolfe Research's revised estimates suggest an EBITDA of $310 million, a 3% increase for 2024, and $342 million, a 2% increase for 2025. Additionally, the firm projects earnings per share (EPS) to rise by 6% to 34 cents in 2024 and by 3% to 37 cents in 2025.
The new price target of $9.00 reflects an 11.5x multiple of the firm's projected 2025 EBITDA for Mister Car Wash. This valuation is slightly below the company's long-term average multiple, which is closer to 15x next twelve months (NTM) EV/EBITDA.
Mister Car Wash reported an 8% increase in sales to $255 million and a 20% rise in adjusted EBITDA to $89 million. The Titanium membership program continues to contribute positively to the company's performance with a penetration rate of 20%. Operational efficiencies led to a decrease in labor and chemical costs, strengthening the company's financial position.
InvestingPro Insights
Recent data from InvestingPro underscores Mister Car Wash Inc.'s (NYSE:MCW) position in the market. With a market capitalization of $2.4 billion, the company trades at a P/E ratio of 33.79, which is adjusted to 31.61 when considering the last twelve months as of Q1 2024. This high earnings multiple is a testament to the market's expectations of future growth but also signals that investors are paying a premium for the company's earnings compared to the broader market.
InvestingPro Tips indicate that Mister Car Wash operates with a significant debt burden and its short-term obligations exceed its liquid assets, which could pose a risk to its financial health. On a positive note, analysts predict the company will be profitable this year, and it has indeed been profitable over the last twelve months. The company's stock price has been quite volatile, but it has shown a strong return over the last month with a 13.1% increase. It's important for potential investors to consider these aspects, as they reflect both the opportunities and risks associated with the stock.
For those interested in a deeper analysis, InvestingPro offers additional tips on Mister Car Wash Inc., which can be accessed through their platform. These insights could provide valuable context to Wolfe Research's recent price target adjustment and the company's growth strategy moving forward.
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