EP120: Eight Fresh Stock Pitches from the Front Lines
Stock Ideas From Investment Professionals
Welcome, subscribers!
We combed through dozens of investor letters this week to find the most thought-provoking stock ideas worth your time.
If you know someone who loves high-conviction pitches as much as you do, forward this along. 📬
This week, we highlight 8 new ideas, including:
A once-overleveraged services giant sheds a struggling division, freeing cash flow and refocusing on steady, high-margin maintenance work, setting up for a clean financial reset and multiple re-rating.
A high-quality medical device maker trades at a rock-bottom valuation after a misunderstood restructuring, offering stable cash generation and recovery potential as execution improves.
A professional-services firm with a fortress balance sheet and a big dividend yield navigates cyclical headwinds while its consulting arm quietly gains share against the Big Four.
A Pacific Northwest regulated utility faces near-term noise from renewable write-downs, but strong core earnings, upcoming rate relief, and a 5%+ dividend create an appealing setup for 2025-26.
A cybersecurity innovator stands at the intersection of AI and zero-trust, expanding from securing human users to managing the exploding world of digital and machine identities.
A Japanese industrial firm with deep chip-equipment expertise stands poised to gain share in next-gen wafer polishing as AI packaging complexity surges, and an activist is pushing for a margin overhaul.
A new decentralized acquirer led by one of Europe’s most successful serial CEOs is quietly building a next-generation holding company of niche market leaders.
Disclaimer: Nothing here constitutes professional and/or financial advice. You alone assume any risk with the use of any information contained herein. We may own positions in the securities listed. Please do your own due diligence.
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Let’s get to it.
Headwaters Capital detailed their long thesis on Driven Brands (DRVN), North America’s largest auto services platform, now refocused on steady, high-margin maintenance and repair. With its car wash divestiture complete and Take 5 Oil Change driving growth, Headwaters sees cleaner financials and a setup for multiple expansion.
Driven Brands: Maintenance and Repair of Portfolio Driving a Multiple Re-Rating
Summary Thesis
1) Recurring revenue characteristics due to non-discretionary nature of automotive maintenance and repair services.
2) Portfolio transformation via sale of capital-intensive US car wash business improves free cash flow and reduces leverage.
3) High growth Take 5 oil change drives accelerating consolidated revenue growth due to mix shift.
4) Multiple expansion in-line with peers due to portfolio simplification, accelerating top-line growth and improved leverage profile.
Company Overview
Driven Brands (“DRVN”) is the largest automotive services company in North America, operating a portfolio of well-known brands across maintenance, repair, paint, collision and car wash. Key franchises include Take 5 Oil Change, Meineke Car Care, Maaco, CARSTAR, and AutoGlassNow. The company’s franchise and company-operated model provides recurring revenue from essential automotive services and strong brand recognition across thousands of locations. The collection of assets was assembled by the private equity firm, Roark Capital, which specializes in consumer and franchise businesses.
It’s easiest to think of Driven as two portfolios: a collection of mature franchise brands and Take 5 Oil Change, the growth portfolio. The franchise portfolio is a collection of brands operating under a franchise model with Driven as the franchisor. Key brands include Meineke (maintenance and repair), Maaco (paint and collision repair) and CARSTAR (repair) along with a number of similar smaller franchises. The theme underlying each of these businesses is that these are generally non-discretionary maintenance and repair services that create a steady stream of high margin franchise revenues for Driven. While these markets are mature with little to no growth, the portfolio generates a predictable stream of cash flow that can be leveraged to invest in assets with higher growth potential. Over time, Driven has used this cash flow to invest in other auto services assets with higher growth. Previous investments included car washes (US and international), an auto glass repair business and Take 5 Oil Change, which is Driven’s primary growth asset today. As is typical in the private equity model, Driven incurred significant leverage to fund this growth, which precipitated the 2021 IPO when the Company raised $760mm of equity and reduced leverage from 9.5x to 5x. Roark also sold some shares in 2021 and 2022 at prices around $30, but still retains a 61% ownership interest in the Company.
Take 5 – Growth Asset
Take 5 Oil Change is a fast, full-service oil change brand that specializes in quick and convenient oil changes without appointments. Services are limited to oil changes and ancillary services that can be performed quickly as part of an oil change (filters, wiper blades, etc). Take 5’s value proposition to consumers is convenience, speed and low-cost relative to dealerships and independent repair shops. Unit economics for Take 5 are strong with 28% cash on cash returns for franchisees. Driven has a mix of company owned locations and franchise locations. Company owned locations represent an attractive capital deployment option, but the franchise model enables faster growth given historical capital constraints at the parent company level.
Over time, quick lube oil change locations have steadily taken market share in the do-it-for-me oil change marketplace as the value proposition has resonated with consumers. Take 5 competes with Valvoline, Grease Monkey and Jiffy Lube. Take 5 seeks to differentiate based on customer service, but the reality is that this market is somewhat commoditized and real estate location and scale in local markets (advertising advantage) are key to gaining share in local markets. There is room for the quick lube category as a whole to continue taking share from dealerships and independents. The company currently has 1,300 stores operating through both company owned and franchise models. Assuming a cadence of 150 new store openings/year combined with 3% same store sales growth at mature stores (mix and ancillary services), Take 5 should be able to grow revenue at a +11% CAGR over the next four years. There is little margin expansion opportunity for Take 5, so operating income growth should approximate top-line growth.
Investment Opportunity: Portfolio Transformation
As a general rule, I avoid investing in companies that have been brought to the public markets by private equity. PE is usually looking for exit liquidity via the public markets and if they are willing sellers, I don’t want to be on the other side of that trade. DRVN is a perfect example. Taking advantage of frothy public markets in 2021, Roark brough DRVN public at a valuation of 30x EBITDA. DRVN IPO’d at $22 in January of 2021 and saw its stock price quickly appreciate to $34 within a month. Since then, the stock has declined by ~50% as this valuation proved unsustainable and fundamentals at the US car wash business deteriorated due to increased competition (it seems like every PE fund invested in car wash between 2019-2022). The poor performance at the US car wash business not only weighed on top-line sales, but also pressured cash flow given the capital-intensive nature of this business. Elevated leverage, poor cash flow, and structural problems at US car wash left DRVN with their hands tied, there really wasn’t an opportunity to grow given the combination of these factors. In February 2025, DRVN announced a sale of the US car wash business to a platform company of Oaktree, thus initiating a critical transformation of the portfolio.
Fast forward to today and DRVN now looks like a quality business with many of the issues above behind us. Proceeds from the car wash sale were utilized to reduce leverage. With capital no longer being diverted to the car wash business and leverage reduced, the business now produces strong free cash flow that will be utilized to further reduce leverage and grow the Take 5 franchise. The remaining portfolio is deserving of a multiple much higher than the business commands today, in-line with peers in the franchise and quick lube oil change categories (see detail below).
Investors also have two call options embedded in the DRVN portfolio. The first call option relates to a potential sale of the international car wash business. Following the sale of US car wash and no other international operations, there isn’t any strategic reason for DRVN maintaining ownership of a car wash business in Europe. I believe a sale of this asset is inevitable, but the timing is unknown. Sale proceeds would help reduce leverage more quickly and enable accelerated investment into growth assets. DRVN also owns AutoGlassNow (“AGN”), which offers glass repair and replacement services to both retail and commercial fleet customers. Safelite is the industry leader in this category, but Driven has commented that they intend to grow the AGN franchise and has recently won some small contracts with regional insurance carriers. While only a small percentage of revenue today and with capital being allocated to debt reduction and Take 5 growth, DRVN is not in a position to focus on this asset. In another year with leverage at more palatable levels and improved free cash flow, AGN could emerge as a second growth asset for Driven.
Valuation
There really isn’t a pure play comp for DRVN. On the Take 5 side, VVV operates a similar model of company owned and franchised stores. Take 5 is currently growing faster than VVV in terms of both store openings and SSS (which is benefiting from faster new store openings). VVV was trading at 12x EBITDA prior to the September sell-off and Take 5 would likely trade at a modest premium to VVV if it operated stand-alone.
In terms of franchise businesses, there are numerous comps, but Boyd Group is probably the closest peer. Boyd currently trades at 11.5x EBITDA, but has a mix of both company operated and franchise auto repair stores. Auto maintenance and repair services are currently facing cyclical headwinds from lower insurance claims and a pressured low-end consumer. This has weighed on BYD’s multiple, which traded closer to 13-14x EBITDA when same store sales growth was +3-4% in 2018-2019. As the cycle eventually turns in DRVN’s favor (comps have been pressured for 2 years), this should also act as a tailwind for fundamentals and valuation for players in the auto repair space. Outside of auto repair, similar low growth franchise models trade at 10x EBITDA. A range of 10-12x EBITDA feels appropriate for the franchise asset.
Cash flow will be used to repay debt, accruing value to equity holders. Take 5 EBITDA growth will outpace growth from the rest of the portfolio, serving as a steady tailwind for multiple expansion. Using a blended multiple of 11x EBITDA on 2027 EBITDA yields a price target of $29.50, or +108% upside from the current price of $14.33. It’s worth noting that DRVN traded at 11x EBITDA at YE 2023, when the car wash business was under significant pressure and leverage concerns were swirling around the consolidated entity. In a normal market environment, DRVN could easily trade for 12-13x EBITDA. Under reasonable assumptions, you can get significant upside from this asset as the market grows to appreciate the improved financial profile of the consolidated entity.
Roark Ownership
On top of everything outlined above, Roark should be motivated to increase the share price given their 61% majority ownership and a hold period approaching 10 years. Recent portfolio actions including the sale of US car wash and divestitures of some smaller businesses are evidence that Roark is attempting to recognize value from the asset. The presence of a motivated financial owner is another reason why I believe the sale of the international business is inevitable.
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