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Investors should see opportunity after Valvoline ‘s recent sell-off, Wells Fargo said. Analyst David Lantz initiated coverage of the automotive repair stock at overweight. His $42 price target implies an upside of 24.5% over Wednesday’s close. “VVV is a high quality operator w/ category-leading comps, accelerating unit growth and an asset-light model,” he said. While electric vehicles present a long-term risk, “recent underperformance is sharp and we see opportunity.” Lantz said Valvoline “sits on the cusp” of accelerating unit growth, bigger margins and improved free cash flow following the sale of its global products business to Aramco. On top of this, he said the company being majority franchised and non-discretionary gives it both offensives and defensive flavors. Valvoline’s stock has underperformed since late July, down about 14% compared with the S & P 500 ‘s slide of approximately 2%. But Lantz said that is for “seemingly unwarranted reasons” tied to concerns around the franchise pipeline and CEO succession. He also said that downturn creates an attractive entry point for investors as the stock has “plenty of road to run.” While he noted shares trade 13% above auto service providers, they are below auto part peers, high-growth retailers and restaurants. Lantz described the company’s long-term targets as both “attractive” and “achievable.” In addition to unit growth, he said those goals can be reached through improved efficiency in car service, expanded services outside of oil changes and sticky pricing. While Lantz admitted that the rise of electric vehicles creates a risk, Valvoline is in a better position than others. He said the risk is also further out than some believe. The stock is underperforming the broader market in 2023, up just over 3% year to date. — CNBC’s Michael Bloom contributed to this report
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