On Friday, Piper Sandler adjusted its outlook on Driven Brands Holdings Inc. (NASDAQ: DRVN), decreasing the price target to $14.00 from the previous $18.00, while sustaining an Overweight rating on the stock. The revision follows the company's first-quarter earnings per share (EPS) and earnings before interest, taxes, depreciation, and amortization (EBITDA) results, which slightly exceeded expectations. However, the departure of the company's Chief Financial Officer, who had been in the role for one year, was also noted as a significant development.
The firm acknowledged several ongoing challenges faced by Driven Brands, including notable sales hurdles in its Car Wash and Glass services. Moreover, the sales guidance provided by the company is seen as overly optimistic. Concerns were also raised regarding the lack of detailed forecasts for different business segments and the improbability of achieving the long-term EBITDA goal of $850 million by 2026.
Despite these issues, the analyst believes that the market's reaction to the company's recent -20% sell-off might be somewhat overstated. This decline is perceived as a reflection of investor exasperation. In response, Piper Sandler has adjusted its projections to the lower end of the company's sales and EBITDA guidance and has reduced its estimates for 2025.
The valuation of Driven Brands is considered low, trading at less than 8.5 times EBITDA and under 13 times the firm's EPS estimates for 2024 and 2025. To align with these revised estimates, the price target was recalculated using a reduced EPS multiple of 15 times the expected 2024 EPS, down from the prior multiple of 20 times.
InvestingPro Insights
As investors evaluate Piper Sandler's revised outlook on Driven Brands Holdings Inc. (NASDAQ: DRVN), it's essential to consider the company's financial health and market performance. The Market Cap (Adjusted) of DRVN stands at $1.94 billion, reflecting its size and investor valuation in the market. Despite challenges noted by analysts, Driven Brands has demonstrated resilience with a Revenue Growth of 8.76% in the last twelve months as of Q1 2024, indicating a potential for recovery and growth. The company's Gross Profit Margin remains robust at 40.82%, showcasing its ability to maintain profitability in its operations.
Investors should note that the current Price to Book ratio is 2.12, which may appeal to value investors looking for assets that are reasonably priced relative to their book value. Additionally, the InvestingPro Fair Value estimate for DRVN is $13.05, suggesting a potential undervaluation compared to the analyst target of $17.00. This discrepancy could signal a buying opportunity for investors who believe in the company's fundamentals.
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