Titanium Membership And New Stores Will Drive Customer Engagement

Key Takeaways

• The introduction of the Titanium membership and expanding marketing efforts are expected to drive revenue growth and brand awareness.
  
• New store openings and operational efficiencies are set to boost top-line revenue and net margins by reducing costs.
  
• Geographic disruptions and rising interest expenses pose challenges to revenue consistency and net income, amid limits to growth expectations and market saturation concerns.

Catalysts

Provides conveyorized car wash services in the United States.

• The introduction of the Titanium membership offering has exceeded expectations and contributed to a 9% increase in Express revenue per member. This is likely to drive future revenue and earnings growth as more members opt for higher-tier plans.
  
• Mister Car Wash's ongoing efforts to broaden marketing reach through a full funnel media strategy and increased investments in channels like paid social and digital display, are expected to drive retail traffic and enhance brand awareness, leading to potential revenue growth.
  
• The company's focus on opening new stores, with a target of approximately 40 new greenfield locations by the end of the year, suggests future top-line revenue growth as these new locations contribute to sales.
  
• Continuous efforts to enhance operational efficiencies, such as optimizing labor and chemical costs and leveraging scale, contribute to increasing net margins and earnings by reducing overall expenses as a percentage of net revenue.
  
• Increased employee engagement and focus on enhancing customer experience are aimed at improving customer retention and loyalty, which could lead to stable or increased comp store sales, thus positively impacting revenue and net margins.

Mister Car Wash Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mister Car Wash's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.5% today to 11.2% in 3 years time.
• Analysts expect earnings to reach $141.1 million (and earnings per share of $0.42) by about January 2028, up from $73.4 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $120.3 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.6x on those 2028 earnings, down from 32.0x today. This future PE is greater than the current PE for the US Consumer Services industry at 19.8x.
• Analysts expect the number of shares outstanding to grow by 1.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.67%, as per the Simply Wall St company report.

Mister Car Wash Future Earnings Per Share Growth

Risks

• While revenue growth was reported at 7% with comp store sales up 2.9%, the guidance suggested revenue would be at the lower end of the range, suggesting potential limits to revenue growth expectations.
  
• Geographic disruptions from hurricanes impacted operations, and despite the subscription model providing some insulation, continued weather events could affect revenue consistency.
  
• The company is managing increased interest expenses, up 8% due to additional borrowings, which could strain net income if interest rates or debt levels rise further.
  
• While wage inflation was lower than anticipated at 4.3%, maintaining competitive pay presents ongoing pressure on net margins amid fluctuating labor costs.
  
• Declining growth in members per store could imply market saturation or increased competition, potentially impacting future membership-driven revenue increases.

Valuation

• The analysts have a consensus price target of $9.58 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 $141.1 million, and it would be trading on a PE ratio of 28.6x, assuming you use a discount rate of 7.7%.
• Given the current share price of $7.29, the analyst's price target of $9.58 is 23.9% 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.