Unit Expansion And Higher Margin Services Will Transform This Auto Care Platform

Catalysts

About Driven Brands Holdings

Driven Brands Holdings operates a diversified auto care platform that includes quick lube, maintenance, paint, collision and international car wash businesses.

What are the underlying business or industry changes driving this perspective?

• Take 5 Oil Change continues to add locations at scale, with 101 net new stores year to date, a full year plan of about 170 new units in 2025 and a stated goal of 150 or more new units annually, which directly supports long term revenue growth and a larger adjusted EBITDA base.
• The non oil change mix at Take 5 has risen to more than 25% of sales, supported by higher attachment rates that moved from the mid 40s to the low 50s over roughly two years, which broadens the revenue per customer and can support net margin expansion as higher margin services scale.
• Take 5’s operating model, built around a stay in your car 10 minute oil change and Net Promoter Scores in the high 70s, positions the brand to keep capturing share in auto maintenance as more drivers prioritize convenience, which can support higher system wide sales and earnings over time.
• A robust growth funnel of approximately 900 pipeline locations for Driven Brands, with over one third already at site secured or more advanced stages, gives visibility on future unit growth that can compound revenue and adjusted EBITDA as these stores ramp.
• The franchise and international car wash segments continue to generate high adjusted EBITDA margins, including 66% in Franchise Brands and 28% in the car wash segment in Q3 2025. This supports free cash flow generation and can improve net income as interest expense trends lower with reduced leverage.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Driven Brands Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Driven Brands Holdings's revenue will grow by 10.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 7.4% today to 12.0% in 3 years time.
• The bullish analysts expect earnings to reach $305.8 million (and earnings per share of $1.86) by about July 2029, up from $141.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $265.1 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.4x on those 2029 earnings, down from 16.9x today. This future PE is lower than the current PE for the US Consumer Services industry at 16.9x.
• The bullish analysts expect the number of shares outstanding to grow by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.74%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is already flagging a choppy consumer backdrop heading into Q4 2025, with management explicitly taking a more conservative stance because of pressure on lower income customers and uncertainty around government funding. This could cap same store sales and slow revenue and earnings growth.
• Franchise Brands, including Maaco and CARSTAR, are described as facing ongoing headwinds. Maaco is called the most discretionary business, so if higher insurance premiums, deductibles and claim avoidance persist, collision volumes and royalty rates could stay under pressure and weigh on revenue and segment margins.
• Management notes that the broader collision industry has seen estimates down high single digits due to claim avoidance and elevated total loss rates. They caution that Q4 may resemble Q2 trends, which suggests that if these industry conditions are prolonged, system wide sales in collision could stay weak and limit earnings growth.
• While the company is focused on delevering, net leverage is still 3.8x and capex is guided near the high end of 6.5% to 7.5% of revenue. If free cash flow conversion slips or growth investments in Take 5 do not maintain current returns, there could be less room to reduce interest expense and improve net income.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Driven Brands Holdings is $22.0, which represents up to two standard deviations above the consensus price target of $17.01. This valuation is based on what can be assumed as the expectations of Driven Brands Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $13.0.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $2.5 billion, earnings will come to $305.8 million, and it would be trading on a PE ratio of 15.4x, assuming you use a discount rate of 8.7%.
• Given the current share price of $14.47, the analyst price target of $22.0 is 34.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.