Investment Thesis
Valvoline operates with unsustainable financial leverage (4.61x debt/equity) paired with razor-thin profitability (1.2% net margin), creating significant refinancing and operational risk. While revenue grows 5.6% YoY and operating cash flow is solid, the company struggles to convert sales into earnings, evidenced by declining net income despite higher revenues and inadequate returns on capital (ROE 3.4%, ROA 0.4%).
Strengths
- Positive revenue growth of 5.6% YoY demonstrates market demand
- Strong operating cash flow of $160.2M provides near-term liquidity support
- Reasonable gross margin of 37.2% shows underlying product profitability before overhead
Risks
- Extreme financial leverage (4.61x debt/equity) with $1.6B debt against only $353M equity creates high refinancing and solvency risk
- Severely impaired liquidity with current ratio of 0.73x signals inability to cover short-term obligations without asset sales or borrowing
- Deteriorating profitability: net income declining (-0.4% YoY) despite revenue growth, with net margin only 1.2% leaving no margin for error
Key Metrics to Watch
- Debt/Equity ratio and debt refinancing schedule - company must manage refinancing without covenant breaches
- Operating cash flow sustainability - ability to service $1.6B debt depends on maintaining $160M+ OCF
- Net margin trend - must stabilize or improve as 1.2% margin is insufficient to cover debt servicing and provide shareholder returns
Financial Metrics
Revenue
965.6M
Net Income
12.0M
EPS (Diluted)
$0.09
Free Cash Flow
45.0M
Total Assets
3.4B
Cash
84.7M
Profitability Ratios
Gross Margin
37.2%
Operating Margin
10.8%
Net Margin
1.2%
ROE
3.4%
ROA
0.4%
FCF Margin
4.7%
Balance Sheet & Liquidity
Current Ratio
0.73x
Quick Ratio
0.61x
Debt/Equity
4.61x
Debt/Assets
0.0%
Interest Coverage
N/A
Long-term Debt
1.6B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-09T13:47:58.663344 |
Data as of: 2026-03-31 |
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