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What Lifted Market Sentiments for Valvoline on Wednesday?

Story Highlights

Portfolio restructuring actions can help companies boost shareholders’ value and expand footprints. The deal between Saudi Aramco and Valvoline, if inked, is expected to be beneficial for both.

The Saudi Arabian Oil Company (or Saudi Aramco) has extended an offer to Valvoline Inc. (NYSE: VVV) to buy the latter’s lubricants business.

This information was published in a Wall Street Journal (WSJ) report on Wednesday. The report stated that the information has been sourced from people who were aware of the matter. However, there is no surety of the successful inception of the deal.

It is worth noting here that Valvoline provides lubricant for motorcycles, passenger cars, and miscellaneous other light-duty vehicles as well as for heavy-duty engines, on-road vehicles, and off-road equipment. This business comes under Valvoline’s Global Products segment.

In October last year, Valvoline expressed its intention to separate its Global Products and Retail Services segments. Back then, the company’s Chairman of the board, Stephen F. Kirk, said, “…we believe that a separation of our business segments will create significant and sustainable value for our shareholders, employees and other stakeholders, and will best position the Retail Services and Global Products businesses for continued long-term success.”

For Saudi Aramco, any deal with Valvoline for its lubricants business will help in the diversification of its business.

This news of a potential deal has lifted market sentiments for Valvoline. Shares of this $6 billion company grew 12.4% to close at $33.48 on Wednesday.

TipRanks’ Data

Per the data compiled by TipRanks, Valvoline has a Strong Buy consensus rating based on three Buys and one Hold. VVV’s average price forecast of $38 suggests 13.5% upside potential from current levels. Shares of Valvoline have increased 2.7% over the past year.

A few days ago, Jeffrey Zekaukas of J.P. Morgan upgraded Valvoline to Buy from a Hold and increased the stock’s price target to $36 (7.53% upside potential) from $30.

Financial bloggers on TipRanks are 100% Bullish on VVV, compared with the sector average of 77%.

Conclusion

If the deal is signed, it will be a win-win situation for both companies. While Saudi Aramco will diversify its business, Valvoline will be able to enhance its shareholders’ value.

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