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Amazon Threat Turns JPMorgan Bearish On Valvoline

Jayson Derrick

Reports of Amazon.com, Inc. (NASDAQ: AMZN) entering the motor oil business should be of particular concern for Valvoline Inc (NYSE: VVV) investors, according to JPMorgan.

The Analyst

JPMorgan's Jeffrey Zekauskas downgraded Valvoline from Neutral to Underweight with a price target lowered from $22 to $20.

The Thesis

Amazon is reportedly set to launch its own private label motor oil product, AmazonBasics Full Synthetic Motor Oil, and early reviews have already been published, Zekauskas said in the downgrade note. (See his track record here.) 

Reports of Amazon's entry were made by National Oil and Lube News, which also reported a 5-quart jug of motor oil with free shipping would cost $19.99, which compares to Valvoline's 5-quart comparable product that retails for $24.97. 

While it may be too early to quantify what impact Amazon will have on Valvoline, the near-term effect on the stock is easier to model, the analyst said. The news of Amazon's entry alone warrants a reduction in Valvoline's stock multiple, as the entire motor oil industry is now likely weaker, Zekauskas said.

JPMorgan's revised price target of $22 implies a 10.4 times EBITDA — unchanged for now at $502 million in 2019 — out-year multiple instead of the firm's prior 11.2 times multiple.

Price Action

Valvoline shares were down 8.46 percent at $20.44 at the time of publication Friday afternoon.

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Date Firm Action From To
Sep 2018 Wells Fargo Maintains Outperform Outperform
Sep 2018 Citigroup Maintains Buy Buy
Sep 2018 DA Davidson Maintains Buy Buy

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