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Preparing Damaged Vehicles for Restoration with Wrecked Stocks

Key Points
– Goodyear Tire and Rubber missed its Q2 2023 earnings estimates by 46 cents as sales fell 6.6% YoY.
– Elliott management helped appoint three new board members for Goodyear in July 2023, former CEOs of CSX Corp., Crane Co. and Tenneco Co.
– Competition in the car wash business and integration problems with the U.S. auto glass business have caused Driven Brands to lower their full-year 2023 guidance, causing shares to lose half their value.
– 5 stocks we like better than Driven Brands

Rising oil prices and a decline in the vehicle market have had an impact on the automobile industry. These developments affect vehicle sales and usage. Companies that specialize in vehicle maintenance, service, and repair play a crucial role in keeping cars on the road. The demand for their services increases with more cars on the road, especially in cases of collisions, accidents, and repairs. While these companies may often be overlooked, they can present valuable investment opportunities. Here are two stocks that have recently encountered difficulties but may be ready for a turnaround by the end of the year.

Goodyear, one of the largest tire makers globally, has struggled to exceed the $15 per share mark in 2023. Despite a 23% increase in share value for the year, the stock has remained stagnant within a certain range. The company’s attempt to break out resulted in a 20% drop back to the $12 range due to disappointing Q2 2023 earnings. Goodyear has faced challenges due to inflationary pressures eating into profit margins as input costs continue to rise. Despite the impact on everyone caused by a 30% increase in raw material costs, Goodyear’s CEO Richard Kramer believes that this year might be the last of these challenges as the headwinds are expected to turn into tailwinds. Goodyear still benefits from its competitive advantage and high barriers to entry in the tire market.

Elliott Management, an acclaimed activist investment firm, sees potential for Goodyear’s stock to reach $21 per share. The firm has acquired a 10% stake in the company and successfully negotiated for three seats on the board of directors in July 2023. Elliott Management suggested selling approximately 715 retail tire service and repair shops, which generate less than 10% of revenues, but can provide $4 per share in cash to pay off some debt. The three new board members, former CEOs of CSX Co., Crane Co., and Tenneco Inc., were announced on July 25, 2023.

Before the new board appointments, Goodyear reported disappointing results in its Q2 2023 earnings report. The company reported a loss of 34 cents per share, well below the consensus analyst estimate of 12 cents per share profit, resulting in a 46-cent miss. Revenues also fell 6.6% to $4.87 billion, falling short of the estimated $5.21 billion. The company expects Q3 2023 volumes to drop by 3% to 4%, with a 3% decrease in the Americas and a 5% decline in Europe. However, the company anticipates lower raw material costs of $125 million. Despite the negative sentiment caused by Goodyear’s weak Q2 2023 performance, the addition of three strong board members may improve sentiment and bring optimism back to the stock.

Driven Brands operates over 4,400 auto service locations under 15 different brands, providing services such as car washes, paint and collision repair, glass repair, radiator repair, oil changes, and maintenance. The company has an asset-light business model, with around 95% of its locations owned by franchisees. However, Driven Brands experienced a 50% drop in its stock value due to disappointing Q2 2023 earnings and lowered guidance.

In its Q2 2023 earnings report, Driven Brands reported earnings of 29 cents per share, missing analyst estimates of 31 cents per share by 2 cents. Revenues, on the other hand, increased by 19.3% YoY to $606.9 million, beating analyst estimates of $587.72 million. The car wash segment experienced a 4% decline in same-store sales due to weaker demand, unfavorable weather, and macroeconomic headwinds.

Driven Brands significantly lowered its full-year 2023 guidance, with an estimated EPS of 92 cents per share, down from the previous guidance of $1.21 per share. The company now expects revenues of $2.30 billion, compared to the earlier guidance of $2.35 billion. Despite the downside guidance, Driven Brands remains confident in achieving long-term adjusted EBITDA of at least $850 million by 2026. Competition in the car wash industry has intensified, with new competitors opening up shop near a third of Driven Brands’ car wash locations within the past few years. The weakness in the car wash and U.S. glass businesses is a significant factor behind the lowered guidance.

In summary, both Goodyear and Driven Brands have faced challenges recently, causing their stock values to decline. However, the addition of new board members and potential improvements in market conditions could lead to a turnaround for these stocks. Investors should carefully evaluate the potential risks and rewards before making any investment decisions.

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