What is VVV's Intrinsic value?

Valvoline Inc (VVV) Intrinsic Value Analysis

Executive Summary

As of June 14, 2025, Valvoline Inc's estimated intrinsic value ranges from $5.62 to $65.23 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $65.23 +84.4%
Discounted Cash Flow (5Y) $47.28 +33.6%
Dividend Discount Model (Multi-Stage) $30.91 -12.6%
Dividend Discount Model (Stable) $29.54 -16.5%
Earnings Power Value $5.62 -84.1%

Is Valvoline Inc (VVV) undervalued or overvalued?

With the current market price at $35.38, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Valvoline Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.77 0.93
Cost of equity 7.4% 10.1%
Cost of debt 4.0% 5.1%
Tax rate 23.7% 24.2%
Debt/Equity ratio 0.29 0.29
After-tax WACC 6.4% 8.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 7.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,619 (FY09-2024) to $3,513 (FY09-2034)
  • Net profit margin expansion from 13% to 18%
  • Capital expenditures maintained at approximately 14% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $47 $7,024M 79.5%
10-Year Growth $65 $9,305M 65.0%
5-Year EBITDA $34 $5,332M 73.1%
10-Year EBITDA $50 $7,387M 55.9%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.7%
  • Long-term growth rate: 2.0%
  • Fair value: $30.91 (-12.6% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.1% (Low) to 7.4% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $16 to $43
  • Selected fair value: $29.54 (-16.5% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $127M
Discount Rate (WACC) 8.6% - 6.4%
Enterprise Value $1,474M - $1,981M
Net Debt $1,014M
Equity Value $460M - $968M
Outstanding Shares 127M
Fair Value $4 - $8
Selected Fair Value $5.62

Key Financial Metrics

Metric Value
Market Capitalization $4497M
Enterprise Value $5511M
Trailing P/E 16.82
Forward P/E 18.27
Trailing EV/EBITDA 6.30
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -100.00%
Debt-to-Equity Ratio 0.29

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $19.57
Discounted Cash Flow (5Y) 25% $11.82
Dividend Discount Model (Multi-Stage) 20% $6.18
Dividend Discount Model (Stable) 15% $4.43
Earnings Power Value 10% $0.56
Weighted Average 100% $42.56

Investment Conclusion

Based on our comprehensive valuation analysis, Valvoline Inc's weighted average intrinsic value is $42.56, which is approximately 20.3% above the current market price of $35.38.

Key investment considerations:

  • Strong projected earnings growth (13% to 18% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.29)

Given these factors, we believe Valvoline Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.