Valvoline's Strong Brand Should Drive Returns
We think the company can leverage its domestic product lineup as it grows internationally and builds its instant oil change presence.
We believe Valvoline’s (VVV) strong recent performance amid oil price volatility and a changing vehicle fleet is indicative of its brand strength, a competitive advantage the company can use to capitalize on favorable industry dynamics. Since its 2016 initial public offering, Valvoline has benefited from attractive domestic industry conditions that have underpinned top-line growth for its core motor oil products and its Valvoline Instant Oil Change centers. Low gas prices and an improving employment picture (an indicator of commuter miles driven) have increased overall vehicle miles driven in recent years; while growth in miles driven has ebbed of late as fuel prices have risen, motorists are still driving more, and the metric has expanded annually since 2011.
Motor oil demand has also benefited from an aging light-vehicle fleet. Improving vehicle quality has helped push the average age of the fleet to nearly 12 years, with relatively stable scrappage rates despite light-vehicle sales that remain near record highs. Motorists with older vehicles are more likely to rely on third-party oil change facilities than those with new cars, who often go to dealerships for service. The vehicle aging trend appears robust; according to IHS Markit, the number of vehicles 6-11 years old will increase 5% and vehicles 12 years or older will grow 10% over the next five years, with vehicles 16 years or older forecast to grow 30% over the same period.
Zain Akbari does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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