Valvoline (VVV) Could Be a Cynical Trade as Employers Crack the Whip

Josh Enomoto - Barchart - Wed Jun 7, 2023

While shares of Valvoline (VVV) may be in the black this year, the investment narrative for many market participants might appear too boring for worthwhile consideration. For example, its latest earnings report presented mixed results, beating on the bottom line while slightly missing on the top. With fancier alternatives available, VVV stock may appear a modest money pit.

At the same time, credit must be given where it’s due. Since the beginning of this year, VVV stock gained a hair over 16%. In contrast, the benchmark S&P 500 index returned just over 12% during the same period. In the trailing one-year period, Valvoline stock moved up nearly 10% while in the past 60 months, it rewarded shareholders with a return greater than 82%.

Put another way, VVV stock has been quietly keeping investors afloat. Further, social normalization dynamics could play a significant role in a far more robust comeback effort.

Plenty of Positives to Consider

Though Valvoline doesn’t necessarily offer sterling financials, there are plenty of positives for patient contrarians to consider. Following the close of the June 6 session, VVV stock represented a notable highlight on Barchart’s screener for unusual stock options volume.

Specifically, total volume hit 56,735 contracts versus an open interest reading of 49,057. Moreover, the delta between the Tuesday session volume and the trailing one-month average metric came out to 866.03%. Drilling down, call volume hit 28,675 contracts versus put volume of 28,060.

To be sure, the pairing yielded a put/call volume ratio of 0.98, ever so slightly favoring the bulls. It’s not a metric to write home about. However, the influx of activity is intriguing considering that VVV stock doesn’t usually hit traders’ radar. As well, it’s worth mentioning that Valvoline’s put/call open interest ratio sits at 0.73, suggesting a gradual return to bullish sentiment.

Further, while the company’s results for the second quarter of 2023 came in mixed, the bulls can still take home encouragement that Valvoline delivered earnings per share of 23 cents, beating Wall Street’s consensus view of 22 cents. Over the past four quarters, Zacks points out that Valvoline beat its EPS target two times.

On the top line, the company posted sales of $344.5 million. Admittedly, this tally missed the consensus estimate by 0.76%. In the past four quarters, Valvoline beat revenue estimates two times.

Still, the market has been broadly enthusiastic about VVV stock. In the trailing one-month period, shares popped up more than 10%. Valvoline released its Q2 results on May 10.

Office-Adjacent Economy’s Return Should Bolster VVV Stock

In part, Valvoline CEO Sam Mitchell stated that the company “…continues to see resiliency and strength in the demand for the quick, easy and trusted preventive maintenance service we provide to our customers, demonstrated by 26% adjusted EBITDA growth on 19% adjusted sales growth1 year over year for the quarter.”

This narrative could be even more powerful than even Mitchell is broadcasting and that has to do with the return of the office-adjacent economy. As I mentioned in my writeup for Dave & Buster’s Entertainment (PLAY), while the work-from-home initiative helped Corporate America stay productive throughout the COVID-19 pandemic, the diminishing of the total addressable market for office-adjacent businesses – coffee shops, restaurants and oil-change providers – greatly impacted the broader post-crisis recovery.

With more employers increasingly cracking the whip regarding the reimplementation of at least hybrid in-office schedules, Valvoline’s business should rise. Essentially, traffic volumes should start returning to normal. In turn, wear and tear on passenger vehicles collectively should rise (and rise exponentially), leading to demand for oil changes and other maintenance and preventative procedures.

To be fair, workers generally don’t like the return to the nine-to-five grind and that’s to be expected. Recently, The Wall Street Journal pointed out that Farmers Group’s new CEO Raul Vargas reversed the insurance firm’s remote work policy, now mandating that a majority of Farmers employees to be in the office three days a week.

Predictably, workers revolted, running up over 2,000 comments posted on Farmers employees’ internal social -media platform. Per the WSJ, most of the comments “were negative or crying and angry emojis.”

From one angle, it’s understandable how most workers feel betrayed. On the other hand, business is business and companies do have a right to issue corporate protocols as they see fit. Of course, workers have every right to quit and seek other employment.

However, amid mass layoffs, it’s risky to do anything rash with your livelihood. Given this reality, the office-adjacent economy will likely return. As such, VVV stock by logical deduction seems a buy.

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On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.