Executive Summary

Valvoline Inc. has executed a significant strategic transformation, evolving from a hybrid manufacturer and retailer into a pure-play, high-growth automotive service provider following the 2023 divestiture of its Global Products business. The core investment thesis now centers on the company’s capacity to leverage its formidable brand equity, a highly successful and scalable franchise model, and a proven track record of operational excellence to generate durable growth. This growth is expected to be driven by a dual strategy of aggressive network expansion and consistent same-store sales increases.

The company’s primary strengths are rooted in its 150-year-old brand, which engenders significant consumer trust, and its differentiated “stay-in-your-car” service model that prioritizes speed and convenience. This operational model has delivered an impressive and unbroken record of 18 consecutive years of system-wide same-store sales (SSS) growth, demonstrating its resilience across various economic cycles.¹ Management has outlined a clear strategic roadmap focused on maximizing the potential of its existing store base, accelerating the expansion of its retail network toward a long-term target of 3,500 locations, and increasing the penetration of higher-margin, non-oil change services.² Capital allocation is now squarely focused on balancing reinvestment in this growth with returning capital to shareholders, primarily through a robust share repurchase program funded by strong free cash flow and the proceeds from the Global Products divestiture.⁴

Despite these strengths, the company faces significant long-term challenges, chief among them the secular shift toward Electric Vehicles (EVs). The widespread adoption of EVs fundamentally threatens Valvoline’s core oil change service, creating uncertainty around the company’s terminal value. In the nearer term, the company operates in a highly competitive and consolidating quick lube market and faces execution risks associated with its ambitious store growth and acquisition strategy.

Ultimately, Valvoline presents the profile of a best-in-class operator within a defensive and historically stable industry. The analysis suggests a compelling near-to-medium-term growth trajectory. However, this outlook must be carefully weighed against the profound and unavoidable long-term structural changes posed by the electrification of the global vehicle fleet.

1. Company Overview & Business Model Analysis

Post-Divestiture Transformation

Valvoline Inc. has fundamentally reshaped its corporate identity and strategic focus. A pivotal moment in this transformation was the sale of its Global Products business—the segment responsible for manufacturing and marketing lubricants and chemicals—to Aramco Overseas Company B.V., a subsidiary of Saudi Aramco, in a transaction that closed in March 2023 for a cash purchase price of $2.65 billion.⁴ This divestiture was a deliberate strategic pivot, transforming Valvoline from a diversified entity into a pure-play automotive service retailer.

The transaction unlocked significant value by separating two distinct business models. The Global Products segment was a capital-intensive manufacturing business exposed to commodity price volatility and direct competition from integrated oil majors. In contrast, the retained Retail Services business is a high-margin, consumer-facing operation with a more predictable, scalable, and capital-light growth profile, particularly through its franchise component. The proceeds from the sale provided substantial capital for debt reduction, accelerated growth investments in the retail network, and significant returns of capital to shareholders.⁴

Following this separation, Valvoline now operates as a single reportable segment, simplifying its financial reporting and clarifying its investment proposition for the market. The company’s future is now exclusively tied to the performance and expansion of its network of automotive service centers.⁴

Business Segments and Revenue Streams

With its singular focus on retail services, Valvoline’s revenue is generated through its network of company-operated and franchised stores. Based on fiscal year 2024 results, the revenue streams can be broken down as follows ⁸:

• Oil Changes and Related Fees: This is the company’s core offering, accounting for approximately 73.4% of total revenue, or $1.19 billion in FY2024. This service is the primary driver of customer traffic and represents the foundational transaction upon which additional services are layered.
• Non-Oil Changes and Related Fees (NOCR): This category represents a crucial growth area and constituted 21.6% of revenue, or $350.1 million, in FY2024. These services include higher-margin offerings such as battery, bulb, and wiper replacements; tire rotations; and various fluid exchanges (e.g., transmission, coolant).¹⁰ A key strategic priority for management is to increase the penetration of NOCR services to enhance the average ticket value and improve store-level profitability.
• Franchise Fees and Other: This stream accounted for 5.0% of revenue, or $80.2 million, in FY2024. It consists primarily of ongoing royalty fees (typically 4-6% of gross sales) and advertising fees (around 6%) collected from franchisees.¹² This is a particularly attractive, high-margin, and capital-light source of revenue that grows in line with the sales of the franchise network.

Value Proposition

Valvoline’s market positioning is built on a clear and effective value proposition: “Quick, Easy, Trusted”.³ The most significant differentiator in the competitive quick lube market is its approximately 15-minute, “stay-in-your-car” service model.¹² This model directly addresses consumer demand for convenience and speed, minimizing disruption to a customer’s day. The “trusted” element is reinforced by the company’s long-standing brand heritage and a transparent service process. This approach has resonated strongly with consumers, leading to high customer satisfaction ratings (averaging 4.6 out of 5 stars) and external accolades for customer service from publications like Forbes.¹²

Franchise Model Evaluation

The hybrid company-owned and franchise model is central to Valvoline’s operations and growth strategy.

• Network Composition: As of the end of fiscal 2024, the Valvoline network comprised 2,010 stores. This was split between 950 company-operated locations and 1,060 franchised locations, making the franchise portion slightly more than half of the total system.⁵ This model allows Valvoline to maintain direct control over brand standards, innovation, and training at its corporate stores while leveraging the capital and local market expertise of its franchisees to accelerate network expansion.
• Unit Economics: The economic model for a Valvoline Instant Oil Change (VIOC) franchisee is compelling. The Average Unit Volume (AUV) for a franchised location is approximately $1.57 million per year. This figure stands out favorably when compared to the industry average for similar oil change franchises, which is around $1.03 million annually.¹² Assuming a 15% operating profit margin, a typical VIOC franchise can generate an estimated EBITDA of approximately $236,000 per year, providing a strong return on investment for operators.¹²
• Franchisee Requirements and Investment: The initial investment required to open a VIOC franchise varies significantly based on real estate decisions, ranging from approximately $192,000 for a leased facility to over $3.4 million if the land and building are purchased outright.¹² Valvoline maintains high standards for its partners, requiring potential franchisees to have a minimum net worth of $1 million and at least $500,000 in liquid assets.¹² This ensures a well-capitalized franchisee base capable of funding growth and weathering economic fluctuations.
• Scalability and Expansion Potential: The robust unit economics and the power of the Valvoline brand make the franchise offering highly attractive. This is a key enabler of the company’s aggressive expansion plans, which target the addition of 250 new stores annually by 2027, with a growing emphasis on franchise-led growth.²
• Inherent Risks: While powerful, the franchise model is not without risk. Valvoline’s revenue and brand reputation are partially dependent on the financial health and operational execution of its independent franchisees. The company has limited direct control over the day-to-day operations of these stores, and any significant service failures or financial distress within the franchisee network could negatively impact Valvoline’s performance.¹⁶

2. Industry Dynamics & Market Position

Market Structure and Size

Valvoline operates within the broader automotive aftermarket, with specific exposure to two key segments: the global automotive lubricants market and the U.S. automotive service market.

• Automotive Lubricants Market: This is a vast, mature, and slow-growing global industry. Market size estimates vary across different research sources but generally fall within the $70 billion to $95 billion range.¹⁷ Projected compound annual growth rates (CAGRs) are modest, typically in the low single digits, from 1.6% to 4.1%.¹⁹ The U.S. represents a substantial portion of this market, with an estimated value of around $25 billion in 2024.²² While Valvoline has divested its manufacturing operations, the dynamics of this market still influence product costs for its service centers.
• U.S. Oil Change Service Market: This is Valvoline’s direct addressable market. It is a smaller but more rapidly growing segment, valued at approximately $8.1 billion in 2024. Projections indicate a healthier CAGR of 5.9%, with the market expected to reach $11.3 billion by 2030.²⁴ The faster growth in the service component compared to the product (lubricants) component underscores the consumer shift toward “Do-It-For-Me” (DIFM) solutions.

Competitive Landscape

The competitive environment for Valvoline has shifted entirely to the service sector post-divestiture.

• Quick Lube Service Providers: The U.S. quick lube market is undergoing a period of consolidation, moving from a highly fragmented state of independent “mom-and-pop” operators to one dominated by a few large, well-capitalized national brands.¹⁴ The primary competitors include:

• Jiffy Lube International (a subsidiary of Shell): Historically the largest competitor by store count, with a network of over 1,900 locations, all of which are operated by franchisees.¹⁰
• Valvoline Instant Oil Change: The second-largest player with 2,010 system-wide stores as of year-end 2024, and widely regarded as the leading consolidator in the space through both organic growth and acquisitions.¹⁴
• Take 5 Oil Change (a subsidiary of Driven Brands): The third-largest and most aggressive grower. Since its acquisition by Driven Brands in 2016, Take 5 has expanded its footprint from just 65 locations to 1,181 by the end of 2024, establishing itself as a formidable competitor.¹⁰
• Other Consolidators: A tier of private equity-backed brands, including Grease Monkey (owned by FullSpeed Automotive), Strickland Brothers, and Express Oil Change, are also actively acquiring smaller players and expanding their regional footprints.¹⁰

Industry Headwinds and Tailwinds

Valvoline’s long-term trajectory will be shaped by several powerful and often conflicting structural trends.

• Headwind – Electric Vehicle (EV) Adoption: This represents the most significant long-term structural headwind for the industry. Battery Electric Vehicles (BEVs) lack an internal combustion engine and therefore do not require engine oil or oil changes, which is Valvoline’s core service offering.²¹ While EVs do require other maintenance services that Valvoline can provide—such as brake fluid changes, coolant service, tire rotations, and battery checks—the frequency and revenue per visit for these services are generally lower than for a traditional oil change.²⁸ The pace of EV adoption is accelerating globally, with projections suggesting EVs could account for more than one in four new vehicles sold worldwide in 2025.³⁰
• Tailwind – Aging Vehicle Parc: A crucial medium-term tailwind is the increasing age of the U.S. vehicle fleet. The average age of light vehicles in operation has climbed to over 12 years.³² Older vehicles are typically out of their manufacturer’s warranty period, leading their owners to seek more cost-effective service options from independent providers like VIOC. Furthermore, older vehicles require more frequent maintenance and repair, creating a durable and growing base of demand for Valvoline’s services.
• Headwind – Extended Oil Change Intervals: The technological advancement of lubricants, particularly the widespread adoption of high-performance synthetic oils, has allowed automakers to recommend significantly longer oil change intervals. The traditional 3,000-mile interval has been replaced by recommendations of 10,000 miles or more for many modern vehicles.¹⁹ This trend directly reduces the frequency of customer visits, a fundamental challenge for an interval-based business model, and places greater emphasis on customer retention and maximizing the value of each visit.³⁵
• Tailwind – Shift from DIY to DIFM: There is a well-established consumer trend away from “Do-It-Yourself” (DIY) maintenance and toward “Do-It-For-Me” (DIFM) services. This shift is driven by the increasing complexity of modern vehicles, time constraints on consumers, and a general preference for the convenience offered by professional service providers.³² This trend directly benefits Valvoline’s business model.

Cyclical vs. Defensive Characteristics

The automotive maintenance industry is widely considered to be defensive and less susceptible to economic cycles than many other consumer sectors. Vehicle maintenance is largely a non-discretionary expense required for safe and reliable transportation.³² During economic downturns, consumers may delay purchasing new vehicles, which tends to increase the age of the vehicle parc and the need for maintenance and repair services. However, in cases of severe economic distress, consumers may defer non-essential maintenance, which could temporarily impact service volumes.⁴ Valvoline’s recent performance through periods of macroeconomic uncertainty has demonstrated strong resilience, with management reporting no significant evidence of service deferrals from its customers.³⁶

The long-term threat of EV adoption is often viewed as the primary risk to the quick lube industry. However, this perspective may underappreciate the durability of demand from the existing fleet of internal combustion engine (ICE) vehicles. The critical factor is not the flow of new EV sales but the gradual turnover of the stock of nearly 280 million ICE vehicles currently on U.S. roads. With an average vehicle age over 12 years and a typical lifespan of 15-20 years, the existing ICE fleet creates a long and predictable tail of demand for oil changes that will likely persist well into the 2030s. This extended timeframe provides Valvoline with a multi-decade “harvesting” period. During this period, the company can utilize the robust cash flows generated by its legacy ICE-focused services to fund strategic priorities: rapidly expanding its physical network to consolidate market share, enhancing its service capabilities for both ICE and EV-specific needs (tires, brakes, batteries, thermal management), and returning substantial capital to its shareholders. The central analytical question becomes whether the present value of these future cash flows, even accounting for an eventual decline, justifies the company’s current valuation.

3. Competitive Advantages and Moats

Valvoline has established a durable competitive position in the automotive service market, fortified by several key advantages that create a formidable economic moat.

Brand Equity

With a heritage spanning over 150 years, the Valvoline brand is one of the most recognized and respected names in the automotive industry.⁴ This long history has cultivated a deep reservoir of consumer trust, which is a critical asset in an industry where customers can feel uncertain about service recommendations and quality. This powerful brand recognition lowers customer acquisition costs and supports premium positioning. The brand’s strength is consistently reinforced through national marketing efforts and accolades, such as being ranked #1 by

Entrepreneur’s Franchise 500 as the leading automotive services retailer and being recognized by Forbes for outstanding customer service.¹³

Distribution Network and Scale Advantages

Valvoline operates the second-largest quick lube network in the United States, with over 2,000 service centers.³ This extensive physical footprint creates a significant convenience moat; customers are more likely to choose a trusted brand that has a location near their home or workplace. This scale yields substantial operational advantages, including:

• Procurement Power: The ability to negotiate favorable pricing with suppliers of ancillary products like filters, wipers, and batteries.
• Marketing Efficiency: The capacity to run national advertising campaigns that benefit the entire system, an advantage smaller regional players cannot match.
• Data Analytics: A large volume of transaction data that can be analyzed to optimize pricing, service offerings, and marketing strategies.

Operational Excellence and Proprietary Technology

The company’s consistent delivery of 18 consecutive years of system-wide same-store sales growth is the ultimate testament to its superior operational execution.¹ A key enabler of this consistency is Valvoline’s proprietary SuperPro™ Management System. This integrated point-of-sale and workflow management technology is used by technicians in every service bay. It standardizes the service process, ensures quality control, and provides data-driven service recommendations based on a vehicle’s specific history and the original equipment manufacturer’s (OEM) maintenance schedule.⁴ This system is the technological backbone that allows Valvoline to reliably deliver on its “Quick, Easy, Trusted” promise at scale.

Switching Costs and Customer Loyalty

For consumers, the direct monetary cost of switching to a competitor is low. However, Valvoline builds significant “soft” switching costs through a consistently positive customer experience. The trust engendered by the brand, combined with the speed and convenience of the service model, creates strong customer loyalty and encourages repeat business.

For franchisees, the switching costs are exceptionally high. Franchise partners make significant upfront capital investments and are bound by long-term franchise, royalty, and supply agreements.¹⁵ This creates a highly stable and predictable recurring revenue stream for Valvoline and ensures the long-term integrity of the network.

The durability of Valvoline’s competitive advantage stems not from any single factor but from the synergistic interplay of its brand, its standardized service model, and its network density. This combination creates a powerful, self-reinforcing virtuous cycle. The trusted brand initially attracts customers. The consistent, efficient, and transparent service experience, standardized by the SuperPro™ technology, builds loyalty and drives the repeat business necessary for strong same-store sales growth. The resulting superior store-level profitability makes the VIOC franchise model highly attractive to potential operators, which in turn fuels the network expansion. As the network grows, its density increases, enhancing the convenience moat and brand visibility, which draws even more customers into the system. This integrated system is exceedingly difficult for smaller, less-capitalized competitors or less disciplined franchisors to replicate, forming the core of Valvoline’s economic moat.

4. Financial Performance Analysis

The divestiture of the Global Products segment fundamentally altered Valvoline’s financial profile. The following analysis focuses exclusively on the results of the continuing operations—the Retail Services business—to provide a clear view of the company’s current trajectory and future potential.

Historical Performance

Valvoline’s retail-focused business has demonstrated a robust and accelerating growth profile over the past several years.

• Revenue Growth: Revenue from continuing operations has shown impressive growth, increasing 12.2% in fiscal year 2024 to $1.62 billion. This followed growth of 16.8% in FY2023 and 19.2% in FY2022.⁴ This top-line expansion is a direct result of the company’s successful execution of its dual-pronged growth strategy:

• Same-Store Sales (SSS) Growth: The business has achieved an 18-year streak of positive system-wide SSS growth. In FY2024, SSS grew 6.7%, on top of 13.7% growth in FY2022 and 21.2% in FY2021.¹ This growth has been driven by a healthy mix of increased customer transactions and a higher average ticket, boosted by premiumization and the expansion of non-oil change revenue.
• Unit Expansion: The company has been aggressively expanding its store footprint, adding a net 158 stores to its system in FY2024.⁵

• Profitability Trends: Valvoline has demonstrated its ability to expand margins alongside revenue. In FY2024, adjusted EBITDA from continuing operations grew 17% to $443 million, with the adjusted EBITDA margin improving by 100 basis points to 27.3%.¹ While gross profit margins have experienced some pressure from product and labor cost inflation, they remain healthy (38.5% in FY2022).⁴ The strategic shift towards a more franchise-heavy model is expected to be accretive to corporate-level margins over the long term, as royalty streams carry very high margins.
• Cash Flow Generation: The business is a strong generator of cash. In fiscal 2024, continuing operations produced $283 million in cash flow from operating activities and $59 million in free cash flow, even after significant capital expenditures for new store construction.⁵
• Return Metrics: Valvoline’s reported Return on Equity (ROE) of 106.4% is exceptionally high but is distorted by a relatively small equity base on its balance sheet following various corporate actions.³⁹ A more representative metric is Return on Assets (ROA), which stood at a healthy 8.5% and compares favorably within its industry.³⁹

The table below provides a summary of key financial metrics for Valvoline’s continuing operations, illustrating the underlying trends of the retail services business.

Metric	FY 2020	FY 2021	FY 2022	FY 2023	FY 2024
System-wide Store Count	1,462	1,594	1,715	1,852	2,010
System-wide SSS Growth (%)	2.3%	21.2%	13.7%	9.9%	6.7%
Net Revenues ($M)	$727.0	$1,037.2	$1,236.1	$1,443.1	$1,619.0
Gross Profit Margin (%)	41.4%	41.7%	38.5%	N/A	N/A
Adjusted EBITDA ($M)	$166.0	$277.0	$315.7	$377.6	$442.6
Adjusted EBITDA Margin (%)	22.8%	26.7%	25.5%	26.2%	27.3%
Adjusted EPS ($)	N/A	N/A	$1.29	$1.18	$1.57
Operating Cash Flow ($M)	$127.2	$182.2	$134.4	N/A	$283.0
Free Cash Flow ($M)	$33.2	$79.1	$2.4	N/A	$59.0

Data sourced from company 10-K filings and earnings releases.¹ Note: Some historical figures may not be directly comparable due to reporting changes post-divestiture.

Financial Health

The sale of the Global Products business significantly strengthened Valvoline’s financial position.

• Balance Sheet Strength: Management utilized a portion of the ~$2.25 billion in net proceeds from the sale to reduce debt.⁴ As of March 2025, total debt stood at $1.1 billion.⁴¹ The company is targeting a net leverage ratio of 2.5 to 3.5 times adjusted EBITDA, a prudent level for a business with a significant, stable stream of franchise royalties.⁴
• Liquidity Position: As of the second quarter of fiscal 2025, the company held $62 million in cash and cash equivalents.⁴¹ This, combined with access to credit facilities, provides adequate financial flexibility to fund its capital expenditure program for new stores and pursue opportunistic acquisitions.

5. Growth Opportunities and Strategy

Valvoline’s management has articulated a clear and focused growth strategy centered on three key priorities: driving the full potential of its existing business, accelerating network growth, and expanding its service offerings.

VIOC Network Expansion

The primary engine of Valvoline’s growth is the expansion of its physical store network.

• Long-Term Target: Management has set a long-term goal of expanding the network from its current base of over 2,000 stores to 3,500 stores across the United States and Canada.³
• Near-Term Pace: The company is actively working to accelerate its pace of development, with a target of adding 250 net new units per year by 2027.² For fiscal 2025, the company has guided for 160 to 185 net new store additions.⁵
• Growth Levers: This expansion is being pursued through a multi-faceted approach:

• Organic Growth: Building new stores from the ground up, a strategy that includes both company-operated and franchisee-developed locations.
• Acquisitions: Acquiring independent operators and smaller chains to convert to the Valvoline system. The pending acquisition of Breeze Autocare, which would add nearly 200 stores, is a prime example of this M&A-driven growth strategy.¹³
• Refranchising: Strategically selling mature, company-operated stores to well-capitalized franchise partners. This approach allows Valvoline to recycle capital into new store development while transitioning to a more capital-light business model.⁵

Service and Ticket Expansion

A parallel focus is on driving same-store sales growth by increasing the value of each customer visit.

• Non-Oil Change Revenue (NOCR): A core element of the strategy is to increase the attachment rate of higher-margin NOCR services. By leveraging the customer traffic generated by its core oil change business, Valvoline aims to sell additional services like tire rotations, battery and wiper replacements, and various fluid exchanges, thereby increasing the average ticket price.²
• Fleet Services: The company is also targeting the commercial fleet segment. Fleet customers represent a source of recurring, high-volume business and value the efficiency and reliability that Valvoline’s model provides for keeping their vehicles on the road.²

Geographic and Product Strategy

• Geographic Focus: The immediate growth priority is domestic, focused on building out its footprint in underserved markets across the U.S. and Canada to reach the 3,500-store target. International expansion of the retail service model is not a stated near-term priority, with non-U.S. operations accounting for less than 3% of revenue.⁹
• Innovation for the Evolving Car Parc: Management has explicitly stated its intent to innovate to meet the needs of the evolving vehicle fleet.² This includes developing service capabilities for hybrid and electric vehicles, focusing on areas like battery health checks, coolant system service, and tire and brake maintenance.

The company’s approach can be characterized as a “land grab” strategy. Recognizing the finite window of peak profitability for the traditional quick lube model, Valvoline is moving aggressively to consolidate the fragmented market. By rapidly expanding its network and securing prime real estate now, it aims to establish an insurmountable network advantage. This large, conveniently located footprint will serve as a critical asset as the vehicle fleet transitions. The goal is to own the customer relationship and the physical service points, allowing the company to pivot its service offerings over time from oil changes to the maintenance needs of EVs, thereby ensuring long-term relevance.

6. Capital Allocation Strategy

Valvoline’s capital allocation framework has been significantly clarified and strengthened following the sale of the Global Products business. The strategy is now oriented around balancing disciplined reinvestment to fuel growth with substantial returns of capital to shareholders.

Historical and Post-Divestiture Framework

Historically, capital was allocated across two different business segments with varying needs. Post-divestiture, the framework is streamlined. The infusion of approximately $2.25 billion in net proceeds from the sale provided the capital to simultaneously de-lever the balance sheet, accelerate growth investments, and significantly increase shareholder returns.⁴

Share Repurchase Program

Share buybacks have become the primary method for returning capital to shareholders.

• In fiscal 2024, Valvoline returned $227 million to shareholders through share repurchases.⁵
• At the end of FY2024, the company had $385 million remaining under its share repurchase authorization, providing significant capacity for future buybacks.⁵
• For fiscal 2025, management has guided for $40 million to $70 million in share repurchases, a more moderate pace that reflects the increased allocation of capital towards new store construction.⁵

Dividend Policy

While the company has a history of paying dividends, the strategic emphasis has clearly shifted towards repurchases. The dividend policy will likely remain conservative, with the bulk of excess cash flow being directed toward buybacks, which management may view as a more flexible and tax-efficient means of returning capital.

Investment Priorities

The top priority for capital deployment is reinvestment in the growth of the retail services network.

• Capital Expenditures (CapEx): For fiscal 2025, Valvoline has guided for CapEx in the range of $230 million to $250 million.⁵ This capital will be primarily directed towards the construction of new company-operated stores.
• M&A Strategy: Acquisitions remain a key component of the growth strategy and a significant use of capital. The pending acquisition of Breeze Autocare demonstrates the company’s appetite for large, network-expanding transactions.¹³ The company and its franchisees also continue to pursue smaller, tuck-in acquisitions of independent operators.

7. Management Quality and Corporate Governance

Leadership Team

Valvoline is led by an experienced executive team with deep expertise in retail, strategy, and finance, well-suited to guide the company’s next phase as a pure-play service provider.

• Lori Flees, Chief Executive Officer: Ms. Flees was appointed CEO in October 2023, having joined the company in April 2022 as President of Retail Services. Her background is heavily weighted in retail operations and corporate strategy, honed over nearly a decade in senior leadership roles at Walmart, including COO of its Health & Wellness division, and 17 years as a partner at Bain & Company. This experience is directly applicable to optimizing and scaling Valvoline’s retail-centric business model.⁴²
• Kevin Willis, Chief Financial Officer: Mr. Willis was appointed CFO in May 2025. He brings a wealth of experience and institutional knowledge to the role, having spent 37 years at Ashland Inc., Valvoline’s former parent company, where he also served as CFO. His deep understanding of Valvoline’s financial history and structure provides critical stability and continuity during its strategic transformation.¹³

Execution History

The management team and the broader organization have an exceptional track record of execution. The most compelling evidence of this is the company’s ability to deliver 18 consecutive years of positive system-wide same-store sales growth.¹ This remarkable consistency through various economic conditions, competitive shifts, and the COVID-19 pandemic highlights a culture of strong operational discipline. Furthermore, the successful and value-accretive separation and sale of the Global Products business demonstrates management’s strategic acumen and ability to execute complex corporate transactions.

Communication and Transparency

Valvoline maintains a high standard of communication with the investment community. The company provides detailed quarterly earnings releases, investor presentations, and conference calls, offering clear guidance on key performance metrics.² Management makes extensive use of non-GAAP measures, such as Adjusted EBITDA and Adjusted EPS, and key business metrics, like system-wide store sales, to provide a clearer understanding of the underlying business performance. These adjusted figures are consistently reconciled to their GAAP equivalents in public filings and presentations.³⁶

Insider Ownership

As of December 2, 2024, the aggregate beneficial ownership of Valvoline common stock by all current directors and executive officers as a group was less than 1% of the total shares outstanding.⁴³ While this level of ownership is not substantial, equity holdings are distributed across the leadership team and board, providing alignment with shareholder interests through stock and option-based compensation.

8. Valuation Analysis

Valuing Valvoline requires a nuanced approach that acknowledges its transformation into a pure-play, franchise-oriented service retailer while also accounting for the long-term secular risks it faces.

Relative Valuation

A direct peer comparison for Valvoline is challenging due to its unique business model. The most appropriate peers are not the integrated oil companies it once competed with, but rather other automotive retail and service companies, as well as high-quality franchisors.

• Peer Group: A relevant peer set includes automotive retailers like Asbury Automotive Group (ABG) and Group 1 Automotive (GPI), auto parts retailers with service operations like Advance Auto Parts (AAP), and other service-focused businesses.⁴⁵ Integrated oil and gas producers listed as competitors in some data sources, such as Ecopetrol (EC) or Antero Resources (AR), are not appropriate comparables for the new Valvoline.³⁹
• Multiple Comparison: Valvoline’s forward P/E ratio of approximately 23.5x is higher than that of traditional auto retailers like ABG (8.7x) and GPI (10.1x), but this premium may be justified by Valvoline’s higher-margin, more capital-light franchise model and its more consistent growth profile.⁴⁵ Its multiples should be assessed relative to its superior growth prospects and returns.

The table below provides a valuation comparison against a selection of relevant peers in the automotive retail and service industry.

Metric	Valvoline (VVV)	Asbury Auto (ABG)	Group 1 Auto (GPI)	Advance Auto (AAP)	AutoNation (AN)
Market Cap ($B)	4.77	4.60	5.25	3.93	7.61
Enterprise Value ($B)	6.08	9.27	10.45	6.33	16.57
P/E Non-GAAP (FY1)	23.50	8.73	10.05	34.44	10.76
P/E GAAP (TTM)	18.20	11.17	11.67	NM	11.97
Price / Sales (TTM)	2.89	0.27	0.26	0.44	0.30

Data sourced from Seeking Alpha as of mid-2025.⁴⁵

Historical Valuation Range

Since its separation from Ashland in 2017, Valvoline’s valuation multiples have fluctuated based on its operational performance and the market’s perception of its long-term risks. An analysis of its historical P/E and EV/EBITDA ranges can provide context for its current valuation, highlighting periods when the market has rewarded its consistent SSS growth or discounted it due to concerns over macro conditions or the EV transition.

Intrinsic Valuation Considerations

A Discounted Cash Flow (DCF) analysis is a critical tool for assessing Valvoline’s intrinsic value, but it is highly sensitive to several key assumptions, particularly regarding the company’s long-term future.

• DCF Inputs:

• Revenue Growth: In the medium term (5-10 years), revenue forecasts should be driven by management’s guidance for net new store additions (160-250 per year) and system-wide SSS growth (in the 5-7% range).
• Margin Progression: EBITDA margins should be modeled to reflect operating leverage from SSS growth, partially offset by investments in growth and potential wage inflation. The increasing mix of high-margin franchise royalty revenue should provide a tailwind to consolidated margins over time.
• Terminal Value: This is the most challenging and critical assumption. A traditional perpetuity growth model with a positive terminal growth rate may not be appropriate given the long-term decline of the ICE vehicle fleet. An analyst must make a carefully considered judgment on the terminal growth rate, which could reasonably be modeled as zero or even negative to reflect the eventual erosion of the core oil change business. Alternative approaches, such as a multi-stage DCF with a declining growth period or an exit multiple approach based on a lower, more mature business multiple, should be considered.
• Scenario and Sensitivity Analysis: Given the uncertainty around the EV transition, a robust valuation should include scenario analysis. A bull case might assume a slower EV adoption rate and successful expansion into EV services, while a bear case would assume rapid EV adoption and a faster decline in the terminal value. Sensitivity analysis should be performed on key variables like the SSS growth rate, new unit returns, and the discount rate to identify the most significant drivers of intrinsic value.

9. Risk Assessment

An investment in Valvoline is subject to a range of risks, which can be categorized into long-term industry shifts, company-specific execution challenges, and broader financial and macroeconomic factors.

Industry Risks

• Electric Vehicle Adoption Timeline: This is the paramount long-term risk to Valvoline’s business model. The transition away from internal combustion engines will directly erode demand for the company’s core, high-frequency oil change service. A faster-than-anticipated adoption of EVs represents the primary bear case, as it would shorten the cash-generating lifespan of the existing business and pressure the company’s terminal value.⁴
• Extended Service Intervals: The ongoing shift toward more advanced synthetic lubricants, which allow for longer intervals between oil changes (e.g., 10,000 miles or more), reduces the frequency of customer visits. This trend puts pressure on transaction-driven growth and requires the company to be more effective at customer retention and increasing the average ticket value per visit.³³
• Commodity Price Volatility: Although Valvoline no longer manufactures lubricants, its company-owned stores and franchisees are still exposed to volatility in the price of base oils and other supplies. Significant and sustained cost inflation could compress franchisee profitability, potentially slowing the pace of network expansion, and could pressure Valvoline’s own margins if price increases cannot be fully passed through to consumers.⁴

Company-Specific Risks

• Franchise Model Risks: The company’s success is intrinsically linked to the financial health and operational discipline of its franchisees. A major franchisee bankruptcy, a widespread decline in service quality across the franchise network, or disputes with franchise partners could harm the Valvoline brand and disrupt a key source of high-margin royalty revenue.⁴
• Intense Competition: The quick lube industry is becoming increasingly consolidated and competitive. Aggressive growth from well-capitalized competitors, particularly Take 5 Oil Change, could intensify competition for prime real estate locations, skilled labor, and customers, potentially compressing new store returns and market share.¹⁴
• M&A Execution and Integration Risk: Valvoline’s growth strategy relies heavily on acquisitions. There is a risk that the company may not be able to successfully integrate large acquisitions like the pending Breeze Autocare deal, potentially leading to operational disruptions, culture clashes, and a failure to realize projected cost and revenue synergies. Furthermore, such large transactions are subject to regulatory scrutiny, as evidenced by the Federal Trade Commission’s second request for information regarding the Breeze acquisition.⁴

Financial and Macroeconomic Risks

• Debt and Leverage: Valvoline maintains a moderate level of debt on its balance sheet. While its target leverage ratio of 2.5x-3.5x adjusted EBITDA is manageable, a significant rise in interest rates would increase the cost of servicing this debt and could constrain the company’s financial flexibility to fund capital expenditures, acquisitions, or share repurchases.⁴
• Consumer Spending Sensitivity: While automotive maintenance is largely non-discretionary, a severe and prolonged recession could lead to a pullback in consumer spending. In such a scenario, customers might defer non-critical services or extend the time between oil changes, which would negatively impact transaction volumes and revenue.⁴

10. Investment Thesis Framework

This section synthesizes the preceding analysis into a structured framework, outlining the primary arguments for the bull and bear cases, and identifying key metrics for ongoing evaluation.

Bull Case Drivers

• Best-in-Class Operator in a Defensive Industry: Valvoline has proven itself to be a premier operator with a highly resilient business model. Its powerful brand, convenient service offering, and consistent operational execution have generated an 18-year track record of uninterrupted same-store sales growth, demonstrating its ability to perform through various economic cycles.
• Clear and Extended Growth Runway: The company has a well-defined strategic plan to grow its store network by over 60%, from approximately 2,100 locations today to a target of 3,500. This provides a visible and predictable path for unit growth and revenue expansion for many years.
• Shareholder-Focused Capital Allocation: Following the sale of its Global Products business, management has adopted a clear capital allocation framework that prioritizes returning significant capital to shareholders, primarily through share repurchases, funded by the strong and growing cash flow of its retail-focused model.
• Durable Demand from Aging Vehicle Fleet: The increasing average age of vehicles on the road provides a strong, multi-year tailwind. Older cars require more frequent maintenance and are more likely to be serviced outside of the dealership network, creating a stable demand base for Valvoline’s services.

Bear Case Concerns

• Terminal Value Risk from EV Transition: The long-term, structural shift to electric vehicles represents an existential threat to Valvoline’s core business. The eventual obsolescence of the oil change creates significant uncertainty around the company’s long-term earnings power and terminal value, forming the core of the bear thesis.
• Intensifying Competition in a Consolidating Market: The quick lube industry is no longer a fragmented landscape of small operators. Valvoline faces intense competition from other well-capitalized consolidators, most notably the rapidly expanding Take 5 Oil Change, which could pressure new unit economics, market share, and acquisition opportunities.
• Execution Risk on Ambitious Growth Plans: The company’s growth targets are aggressive and depend on successfully executing a high volume of new store builds and integrating acquisitions. Any stumbles in real estate development, construction, or M&A integration could cause the company to miss its targets and lead to a negative re-rating of its stock.

Key Monitoring Metrics

To effectively track the performance of Valvoline and validate the investment thesis over time, investors should focus on a specific set of Key Performance Indicators (KPIs). These metrics provide the most direct insight into the health of the core business and its progress against strategic goals.

Key Performance Indicator	FY2024 Actual	FY2025 Guidance	Rationale for Monitoring
System-wide SSS Growth (%)	6.7%	5.0% – 7.0%	The primary measure of the health and pricing power of the existing store base. Consistent growth is central to the bull thesis.
Company-Operated SSS Growth (%)	N/A	N/A	Differentiates performance at stores under direct company control, a key indicator of operational execution.
Franchised SSS Growth (%)	N/A	N/A	Measures the health of the franchise system, which drives high-margin royalty revenue.
Net New Store Additions	158	160 – 185	The main driver of top-line revenue growth. Tracks progress against long-term expansion targets.
– Net New Company Stores	74	N/A	Indicates the level of capital-intensive growth being pursued directly by the company.
– Net New Franchise Stores	84	N/A	Shows the pace of capital-light expansion and the attractiveness of the franchise model to new partners.
Adjusted EBITDA Margin (%)	27.3%	N/A	The key measure of profitability and operational efficiency. Tracks the impact of pricing, costs, and franchise mix.

Data sourced from company earnings releases.⁵

Catalyst Timeline

• Near-Term (6-12 Months):

• Quarterly earnings reports, with a focus on SSS and net store additions relative to guidance.
• Final resolution of the pending Breeze Autocare acquisition, including clearance from the FTC.
• Further announcements regarding the company’s refranchising strategy and capital recycling efforts.
• Long-Term (2-5 Years):

• Demonstrated progress toward the goal of 250 annual store additions and the 3,500 total store target.
• Measurable growth in NOCR as a percentage of system-wide sales, indicating successful service expansion.
• Clear articulation and execution of a strategy to service EVs, including potential new service offerings and investments in technician training and equipment.

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