Top 2 Auto Maintenance Stocks Gearing Up for 2025

Key Points

• While car manufacturers get the spotlight in the automotive industry, auto maintenance and service stocks are setting up for a strong 2025.
• Driven Brands is the largest automotive services franchisor in the industry, with over 5,000 store locations that serve nearly 70 million vehicles annually.
• Goodyear Tire is making progress on its Goodyear Forward turnaround strategy despite its stock sinking 35% in 2024.

A robust vehicle sales market bodes well for the auto maintenance market since consumers will need to service their cars to keep them operating efficiently. Even during contractions in the auto/tires/trucks sector, maintenance is always a constant. Whether this entails replacing tire parts or getting repairs, car washes, and oil changes, auto maintenance is a fact of life for any automobile owner. Here are two auto maintenance and service industry stocks that could gain more in 2025.

Driven Brands: Servicing Cars Since 1972

With over 5,000 locations servicing nearly 70 million cars annually, Driven Brand Holdings Inc. NASDAQ: DRVN is North America's largest auto services company.

While it may not be a household name, its brands are.

The company owns a number of auto service businesses in North America, including:

• Maaco for auto body repairs and paint jobs
• Meineke Car Care Centers for services including oil changes, brake repairs, and tire rotations
• Midas for auto repair, tires, and maintenance
• CARSTAR for collision repair and paintless dent repair
• Take 5 Oil Changes for oil changes
• Take 5 Car Wash for car washes
• Auto Glass Now for auto glass repairs
• 1-800 Radiator & AC, an independent auto parts company
• Fix Auto for collision repair

It also owns international brands IMO Car Wash, Uniban, ABRA Auto Glass, Automotive Training Institute, and Merlin Complete Auto Care. Driven Brands franchises over half its businesses with 2,600 franchise locations across multiple categories. Its franchised stores generate over $80 million in advertising funds, which are used to drive sales and traffic.

Its franchise businesses represent over two-thirds of its Driven System sales, and half of the System sales come from long-standing commercial partners. Driven Systems Advantage is its online marketplace where company stores and franchisees can purchase over 90,000 SKUs from over 50 vendors ranging from office supplies to oil, equipment, and paint. Driven Brands is also the world's largest auto services franchisor.

Same Store Sales Rise for the 15^th Consecutive Quarter

Driven Brands reported Q3 2024 EPS of 26 cents, beating analyst estimates by 4 cents. Revenues rose 2% YoY to $591.7 million, falling short of the $598.5 million consensus estimates. System-wide sales rose 1.1%, with 56 net new units. Same-store sales (SSS) for Take 5 Oil Change have risen for the 15^th consecutive quarter. Around 40% of its Take 5 locations are franchised, with 1,000 locations. The company sold its Canadian distribution business, PH Vitres, and has the U.S. Car Wash business under strategy review. The company has sold $160 million of assets so far in 2024.

The company reaffirmed its 2024 financial outlook of EPS around 88 cents to $1.00 versus $1.02 analyst estimates. Full-year revenues are expected to be between $2.33 billion and $2.43 billion, versus the consensus estimates of $2.36 billion. SSS is expected to grow 1% to 3% YoY.

Driven Brands CEO Jonathan Fitzpatrick stated, "My focus in 2024 is clear: delivering on our outlook, reducing debt, and active portfolio management. We have a platform that generates high steady state returns with a long runway for reinvestment at attractive returns, and we're incredibly motivated to see our valuation mirror our results over time.”

Goodyear: Tires and Service Centers

After acquiring rival Cooper Tire, Goodyear Tire & Rubber Co. NASDAQ: GT became North America’s largest tire manufacturer, providing tires not only for cars, trucks, buses, and motorcycles but also for aircraft, mining, and farming vehicles. 

Activist shareholder Elliott Management took a 10% stake in the company in 2023 and has been advising management to help unlock value for shareholders.

Elliott Management believes the company’s stock could be worth $32 under its plan, which includes divesting its service centers.

Embracing the Goodyear Forward Turnaround Strategy

Management embarked on a turnaround strategy labeled Goodyear Forward in November 2023. The company targeted $1.3 billion in cost savings by Q4 2025. The plan calls for raising over $2 billion in cash by selling off non-core businesses, which include certain chemical assets and their off-the-road business, to focus on its core time operations and higher margin businesses. Financial strengthening will be achieved by achieving a 10% segment operating income margin and 2x to 2.5x net leverage by the end of 2025. Lastly, the plan calls for strengthening Goodyear's brand and tier position in North America.

Moving Forward on the Right Track

Goodyear posted Q3 2024 EPS of 37 cents, beating consensus estimates by 15 cents. Revenues fell 6.2% YoY to $4.82 billion, falling short of the $4.92 billion consensus analyst estimates. Segment operating income (SOI) was $347 million for an SOI margin of 7.2%, up 70 bps YoY. This marks the fourth consecutive quarter of SOI margin expansion, up 300 bps in the trailing twelve months (TTM). America's SOI margin was 8.08% on $251 million income. Asia Pacific COI was 11.7% on $72 million income, up 11.7% YoY.

Goodyear Forward targets increased portfolio optimization progress. Run rate cost reduction and top-line benefits increased by $200 million above the original $1.3 billion target. Goodyear expects to realize gross proceeds over $2 billion from portfolio optimization, reaffirming its commitment to net leverage of 2X to 2.5X by the end of 2025.

Goodyear CEO Mark Stewart commented, "As a result of the consistent and strong execution of our Goodyear Forward transformation plan, we successfully achieved four consecutive quarters of segment operating margin expansion. These tangible results are not only a testament to the talent of our team but also to the strong foundation of Goodyear.”

Stewart added, "We have raised our guidance for 2024 Goodyear Forward gross benefits to $450 million and we continue to expect an additional $750 million of year-over-year gross benefits in 2025. We remain confident we will achieve our 10% SOI margin and 2.0x – 2.5x leverage targets in the fourth quarter of next year."