Valvoline's Refranchising Strategy and Earnings Reacceleration Potential

The automotive services sector has long been a barometer of broader economic trends, but few companies exemplify strategic reinvention as vividly as Valvoline (NYSE: VVV). In 2025, the company has navigated a dual narrative: short-term headwinds from its aggressive refranchising and acquisition strategies, and a compelling long-term growth story underpinned by margin expansion, network expansion, and a resilient business model. For investors, the key lies in disentangling these dynamics to assess whether Valvoline's current valuation reflects its medium-term potential.

Strategic Transformation: Refranchising as a Catalyst for Margin Expansion

Valvoline's refranchising strategy has been a cornerstone of its transformation, shifting from a company-operated model to a franchise-centric approach. By the end of fiscal 2025, the company had refranchised 67 stores, with plans to integrate 162 Breeze Autocare locations into its Valvoline Instant Oil ChangeSM system post-acquisition. This transition, while temporarily diluting reported sales growth, is designed to boost higher-margin royalty and fee income. For instance, Q3 2025 results showed that net revenues rose 12% when adjusted for refranchising, compared to a nominal 4% increase. Similarly, adjusted EBITDA and EPS growth accelerated by 12% and 18%, respectively, when refranchising impacts were factored in.

The refranchising strategy also aligns with broader industry trends. By reducing capital intensity, Valvoline can redeploy resources into high-growth areas like preventive maintenance services, which now account for a growing share of its revenue. As stated by management during its investor update, this shift "creates a more scalable and profitable business model".

Easing Headwinds and Earnings Reacceleration Potential

Despite these structural strengths, Valvoline's near-term performance has been clouded by two key challenges: elevated interest and depreciation costs from the Breeze acquisition and a temporary drag on earnings per share (EPS) guidance for fiscal 2026. Piper Sandler analyst Peter Keith highlighted these pressures in November 2025, lowering the firm's price target to $41 from $50 while retaining an Overweight rating. However, the same analyst noted that these headwinds are transient. The Breeze acquisition, though dilutive in the short term, is projected to become "nicely accretive" by fiscal 2027.

More recently, Piper Sandler upgraded its price target to $50 in late 2025, citing improved visibility on cost synergies and a reacceleration in EBITDA growth for 2026 and 2027. This upgrade reflects confidence in Valvoline's ability to navigate its transition phase. For example, the company's leverage ratio, which peaked at 4.2x post-acquisition, is expected to stabilize as EBITDA growth outpaces debt servicing costs. Meanwhile, same-store sales (SSS) growth of 6.1% in fiscal 2025-driven by premiumization and customer acquisition-underscores the resilience of its core business.

Positioning for 2026: Balancing Risks and Rewards

Investors must weigh near-term risks-such as the integration of Breeze Autocare and elevated debt-against the company's structural advantages. The refranchising strategy, while dilutive in the short term, is creating a more capital-efficient business. Meanwhile, Piper Sandler's upgraded price target and the entry of new analysts like Roth Capital (with a $42 target) and Jefferies (with a $40 target) signal growing confidence in Valvoline's execution.

For those with a medium-term horizon, the current valuation offers an attractive entry point. Valvoline's 19th consecutive year of SSS growth, combined with its strategic pivot toward high-margin services and franchise expansion, positions it to outperform in 2026. As one analyst put it, "The near-term noise is temporary; the long-term story is intact".

Conclusion

Valvoline's journey in 2025 has been one of strategic reinvention, marked by bold refranchising and acquisition moves that will reshape its earnings profile. While near-term challenges persist, the company's structural strengths-margin expansion, network scalability, and a resilient franchise model-point to a reacceleration in earnings growth by 2026. For investors willing to look beyond the short-term noise, Valvoline represents a compelling case of undervaluation and transformation.