Mister Car Wash On Track To Double Its Market Share By About 5% As Loyalty Program Gives It A Competitive Advantage, Analysts Say

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Mister Car Wash Inc., the only pure-play car wash on the public market after an initial public offering at the end of June, is expected to easily increase its market share, thanks to a strong loyalty program and low costs, have analysts said Tuesday.

“We believe that MCW’s MCW,
+ 1.15%
a strong brand, growing store base and premier membership program have the potential to further strengthen Mister’s competitive positioning in the large, growing and highly fragmented US car wash industry, ”said Jefferies analysts Randal J Konik and Corey Tarlowe, who launched the stock hedge with a buy rating and a target price of the stock of $ 30, or 42% above its current price.

“We see MCW as a star in a SaaS (service as a service) economy, in which a confluence of the aforementioned factors, combined with Mister’s focus on sustainability, creates a flywheel that looks like other consumer growth platforms that we view favorably. ”

At BMO, analyst Simeon Siegel agreed, giving the stock an outperformance rating and a price target of $ 25, according to expectations, the largest US car wash operator will increase its market share beyond of the current 5%, by integrating the companies it has acquired, thanks to entirely new developments. , and growing membership in its loyalty program, Unlimited Wash Club or UWC.

UWC had 1.4 million members when the company filed its IPO documents. This ensured that over 60% of the company’s revenue is recurring, as CEO John Lai told MarketWatch on the day the stock started trading.

See: Mister Car Wash ‘Inspires People to Shine’ As Stocks Soar 37% in Early Trading Stage

“The growth of UWC members has been critical, achieving a compound annual growth rate of around 39% (FY16-20) with penetration dropping from around 36% to around 62% over the same period.” , wrote Siegel in a note to clients.

The Arizona-based firm’s stock was up 5.4% on Tuesday and about 41% from its IPO price of $ 15. The company raised $ 468.8 million when it went public for a valuation of $ 4.44 billion.

See also: The IPO market faces the busiest week of the year – if all 19 deals on the calendar are completed

Mister Car Wash has 344 locations in 21 states, according to its IPO prospectus, and washed 59.6 million cars in the year through March 31. It posted net income of $ 24.6 million in the quarter through March 31, compared to $ 8.86 million in the year. -previous period. Revenue increased from $ 155.3 million to $ 175.5 million. In 2020, it generated net profit of $ 60.4 million and revenue of approximately $ 575 million. The company only offers car washes, having sold the lubricant stores it previously owned.

Management is targeting high single-digit unit growth, driven by an average of around 10 M&A deals per year and around 20 new office openings, Siegel said. “With minimal variable costs, revenue growth is expected to boost operating leverage, which, along with workforce efficiency and process flow optimization, is expected to drive margin expansion, management expecting long-term double-digit EBITDA growth, ”he wrote.

UBS analysts led by Michael Lasser took a less bullish view, however, initiating hedging with a neutral rating and a 12-month price target of $ 22.

“We think MCW is a good story,” they wrote in a note to clients. “It is a well-run company that operates in a fragmented market and whose unit economy is very favorable in our opinion. Our call for action is only hampered by the valuation of the premium. “

Mister Car Wash’s stock is trading at 27 times UBS’s 2020 EV / EBITDA estimate, which puts it above high-growth retailers, “and largely in line with subscription service companies like Netflix NFLX,
-3.39%.
So we would be looking for a more attractive entry point, ”they wrote.

The average analyst stock rating on FactSet is overweight, while the average price target was $ 24.14.

Piper Sandler started coverage with a maintain rating and a price target of $ 21 and Wolfe Research launched their coverage with a buy rating and a price target of $ 25.


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