Expanded Titanium Service And New Stores Will Strengthen Market Position In 2025

Key Takeaways

• Expansion through the greenfield program and new store openings aims to strengthen market position and drive future revenue growth.
  
• Enhanced brand messaging and premium service offerings are expected to increase customer engagement and improve margins.
  
• Dependence on weather and intense competition may pressure margins, while cautious expansion and retail uncertainty could limit revenue growth potential.

Catalysts

Provides conveyorized car wash services in the United States.

• Mister Car Wash plans to continue expanding its footprint through its greenfield program, with plans to open 30 to 35 new stores in 2025, mainly in key metro areas to densify and strengthen its market position. This expansion is expected to drive future revenue growth.
  
• The introduction of premium services like the Titanium service, which accounted for 23% of membership penetration in 2024, is seen as a driver for increasing average revenue per member and improving net margins.
  
• The company is increasing its investments in marketing to enhance brand messaging and engage with customers in new ways, which is expected to help drive retail traffic and membership growth, potentially impacting revenue positively.
  
• The appointment of a Chief Technology Officer to lead technology as a competitive differentiator is part of the strategy to innovate operations and enhance the customer experience, potentially improving operational efficiencies and net margins.
  
• Mister Car Wash anticipates a reduction in interest expenses by 20% in 2025, primarily due to recent repricing of its term loan and revolving credit facility, which is expected to positively impact net income and earnings per share.

Mister Car Wash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mister Car Wash's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.1% today to 11.1% in 3 years time.
• Analysts expect earnings to reach $139.4 million (and earnings per share of $0.42) by about May 2028, up from $70.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 29.0x on those 2028 earnings, down from 32.6x today. This future PE is greater than the current PE for the US Consumer Services industry at 20.0x.
• Analysts expect the number of shares outstanding to grow by 1.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.93%, as per the Simply Wall St company report.

Mister Car Wash Future Earnings Per Share Growth

Risks

• The company's revenue growth is partially dependent on favorable weather conditions, which results in unpredictable fluctuations and could impact their overall earnings stability.
  
• Mister Car Wash operates in a highly competitive market with many new entrants; despite expectations of consolidation, persistent competition could pressure pricing power and impact net margins.
  
• There is uncertainty around consumer behavior, specifically with the non-subscription retail portion of the business. Continued headwinds in retail could affect overall revenue growth.
  
• Increases in labor rates and other operating expenses like rent and utilities could pressure net margins if not offset by revenue growth or cost efficiencies.
  
• The reduction in new store openings from 40 to 30-35 as part of a more cautious approach could limit future revenue growth potential if the company underestimates market opportunities.

Valuation

• The analysts have a consensus price target of $9.5 for Mister Car Wash based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $11.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $139.4 million, and it would be trading on a PE ratio of 29.0x, assuming you use a discount rate of 7.9%.
• Given the current share price of $7.04, the analyst price target of $9.5 is 25.9% 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.