Rising oil prices and the cooling vehicle market have one thing in common: cars. Both developments impact vehicle sales and usage. Vehicle maintenance, service and repair companies keep cars on the road. Their business grows with more cars on the road, especially with collisions, accidents and repairs. These companies are often overlooked but can present some value investing opportunities. Here are two stocks that have been wrecked recently but may be ready for repair heading into year's end.
The Goodyear Tire and Rubber Company (NYSE: GT)
As one of the world's largest tire makers, Goodyear has been unable to gain traction beyond the $15 per share market in 2023. Despite shares being up 23% for the year, shares remain stagnant in a range as its last breakout attempt resulted in a 20% haircut back to the $12 range after disappointing Q2 2023 earnings. The company has been hit hard with inflationary pressures eating into margins as rising input costs remain elevated despite projecting them to fall every quarter. While 30% raw material cost increases are hitting everyone, Goodyear CEO Richard Kramer believes this may be the last year for them as headwinds will turn into tailwinds. Goodyear still enjoys the moat it's built as the barriers to entry in the tire market are relatively high.
Enter Elliott Management
Acclaimed activist investment firm Elliott Management believes the company can be worth $21 per share. The firm acquired a 10% stake in the company and negotiated for three seats on the board of directors in late July 2023. Elliott had suggested selling around 715 of its retail tire service and repair shops, which generate less than 10% of revenues but can generate $4 per share in cash to pay down some debt. It was announced on July 25, 2023, that the three new board members would be former CEOs of CSX Co. (NASDAQ: CSX), Crane Co. (NYSE: C.R.) and Tenneco Inc. (NYSE: TEN).
Sickly Results Before Elliott
Goodyear reported its Q2 2023 earnings report for the period ending in June 2023, before the new Elliott-approved board appointments. The company reported a loss of 34 cents per share versus consensus analyst estimates of 12 cents a share profit, a 46-cent miss. Revenues fell 6.6% to $4.87 billion, falling short of the $5.21 billion estimates. The company expects Q3 2023 volumes to fall 3% to 4%, with a 3% drop in the Americas and down 5% in Europe. Raw materials costs are expected to be lower by $125 million. While the sentiment is negative for Goodyear Tire based on its sick Q2 2023 performance, adding three strong board members may improve sentiment as optimism returns to the stock.
Goodyear Tire and Rubber analyst ratings and price targets are at MarketBeat.
Weekly Descending Triangle Pattern
The weekly candlestick chart on GT has been in a descending triangle pattern since peaking at $24.17 in January 2022. Activist firm Elliott Management entered the picture and triggered a breakout through the descending trend line in July with the addition of the new board members. However, the weak Q2 2023 earnings and outlook caused shares to stink back into the descending triangle range. Each bounce gets shallower until the flat-bottom horizontal trendline at $10.12 breaks down, or GT breaks out through the descending trendline. The weekly relative strength index (RSI) is starting to fall under the 50-band. Pullback support levels are $12.18, $11.52, and $11.08 weekly market structure low (MSL) trigger and $10.33.
Driven Brands Holdings Inc. (NASDAQ: DRVN)
Driven Brands has over 4,400 auto service locations under 15 brands, including Meineke, MAACO, IMO, CARSTAR, Take 5 Oil Change, Take 5 Car Wash, Fix Auto USA, Spire Supply, Auto Glass Now and 1-800-Radiator & A/C. The locations offer services ranging from car washes to paint, collision, glass repair, radiator, oil change, and maintenance. The company operates an asset-light business model, with around 95% of the locations owned by franchisees. Shares recently suffered a 50% collapse on its Q2 2023 earnings results and lowered guidance.
Decent Q2 2023 Earnings Report
On August 2, 2023, Driven Brands released its Q2 2023 earnings report for the period ending in June 2023. Earnings came in at 29 cents per share, missing analyst estimates of 31 cents by 2 cents. Revenues climbed 19.3% YoY to $606.9 million, beating $587.72 million analyst estimates. Same-store sales declined 4% in its car wash segment due to softer retail sales demand, unfavorable weather, and macro headwinds.
Disastrous Guidance
Driven Brands lowered its full-year 2023 estimate for EPS of 92 cents per share, significantly down from its $1.21 earlier guidance. It sees revenues of $2.30 billion, down from earlier guidance of $2.35 billion. It remains confident of achieving long-term adjusted EBITDA of at least $850 million by 2026. Competition continues to grow as nearly a third of its car wash locations have seen new competitors opening shop within three miles in the past few years. The weakness in the car wash and the U.S. glass business is driving the downside guidance.
Driven Brands analyst ratings and price targets are at MarketBeat.
Weekly Descending Triangle Breakdown
DRVN triggered a weekly descending triangle breakdown pattern triggered by its Q2 2023 earnings report and lowered full-year 2023 guidance. The shares hit all-time lows at $13.15 and attempted to bounce but peaked at the weekly MSL trigger level at $15.34. Shares continue to slump toward all-time lows as the weekly RSI oscillator flashes extremely oversold conditions at the 23-band. Pullback support levels are at $11.70, $10.49 and $9.55.
