Avis Budget stock faces limited upside amid fleet and depreciation concerns

On Thursday, Barclays initiated coverage on Avis Budget Group (NASDAQ:) stock with an Equalweight rating and set a price target of $105.00. The firm noted Avis Budget’s solid execution and strong position in the U.S. rental car industry, ranking second after Enterprise and ahead of Hertz.

The analyst highlighted the company’s potential to benefit from a structurally improved rental car sector and its capacity for generating free cash flow, which could lead to consistent and attractive share buybacks.

Despite these strengths, Barclays pointed out potential near-term challenges for Avis Budget, including increased fleet availability, temporarily elevated depreciation expenses, and the possible impact from competitor Hertz’s fleet rebalancing. These factors contribute to the firm’s below-consensus view on Avis Budget’s projected EBITDA for 2025.

The analyst also expressed concern over downside risks to Avis Budget’s stock, particularly in the event of further instability or liquidity issues at Hertz. This concern is believed to be influencing Avis Budget’s current pause in share buybacks. The pause is seen as a precautionary measure in light of the uncertainties in the rental car industry and the potential ripple effects from Hertz’s situation.

Barclays’ assessment of Avis Budget’s outlook is cautious, acknowledging the company’s operational strengths while also considering industry-wide variables that could affect its performance. The price target of $105.00 reflects a balanced view of these factors, as Avis Budget navigates the evolving landscape of the car rental market.

In other recent news, Avis Budget Group has made significant strides in their financial developments. The company announced the issuance of $700 million in senior notes due 2030, a $200 million increase from the initial offering.

This strategic move was conducted by Avis Budget Car Rental, LLC and Avis Budget Finance, Inc., both wholly-owned subsidiaries of Avis Budget Group. The proceeds from this offering are expected to be used for general corporate activities, including repaying debt.

In addition to this, Avis Budget Group reported a strong Q2 performance, with revenues exceeding the $3 billion mark and an adjusted EBITDA hitting $214 million. The company sold a record number of vehicles in the first half of the year, enhancing fleet utilization.

For Q3, the company’s adjusted EBITDA is expected to range from $500 million to $600 million, with plans to maintain a net debt of approximately $350 million for the remainder of the year. These are the recent developments in Avis Budget Group.

InvestingPro Insights

In light of Barclays’ initiation of coverage on Avis Budget Group, a look at the real-time data from InvestingPro offers additional context to the company’s financial health and stock performance. Avis Budget Group’s market capitalization stands at approximately $3.03 billion, which is reflective of its solid position in the market. The company’s P/E ratio is notably low at 4.05, suggesting that the stock could be undervalued compared to earnings. This is further supported by an adjusted P/E ratio over the last twelve months as of Q2 2024, which is even lower at 3.71.

InvestingPro Tips highlight that Avis Budget is operating with a significant debt burden and is quickly burning through cash, which could be potential concerns for investors. In addition, analysts have revised their earnings downwards for the upcoming period, indicating potential headwinds. Despite these challenges, the company has seen a significant return over the last week, with a price total return of 21.08%.

For those considering an investment in Avis Budget Group, it’s worth noting that the company’s stock price has experienced considerable volatility, with a one-year price total return of -53.72%. However, analysts predict the company will be profitable this year, which could be a positive signal for the stock’s future trajectory.

For a deeper dive into Avis Budget Group’s performance and additional InvestingPro Tips, interested readers can explore the insights on InvestingPro, which includes a total of 16 tips for a comprehensive analysis.

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