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Bear of the Day

Avis Budget Group (CAR - Analyst Report), Zacks Rank #5 (Strong Sell), is a provider of vehicle rental services through its Avis and Budget brands. Although the stock had performed strongly into early June, it has been under pressure recently because of reduced confidence in its earnings outlook.  

Earnings estimates have slipped:

In the wake of its earnings report on August 6, the Zacks Consensus Earnings per Share Estimates for Avis Budget have declined $0.16 to $2.20 and $0.21 to $2.73 for 2013 and 2014 respectively.    Earnings have been pressure due to weakness in Europe and Australia and rising fleet costs in North America.  The chart displays the trend in earnings estimate revisions.  The trend has turned flat to lower in recent months and caused the share price to stall out.  

Hertz is no help:

The outlook for North America may be deteriorating further as Thursday Hertz (HTZ - Snapshot Report) guided its 2013 EPS outlook lower to a range of $1.68 to $1.87 compared to the Zacks Earnings per Share Consensus of $1.88.  Hertz noted weaker than expected on airport volumes.  Hertz was a Zacks Rank #3 (Hold) prior to its earnings guidance and is in jeopardy of seeing its Zacks Rank slip.  The announcement from Hertz spilled into Avis which also saw its share price weaken suggesting industry wide profit pressures.

Technical levels will test the bid:

Technically, Avis Budget was able to hold the $27.00 area in June and August.   A breach of this area could cast a dark cloud over the chart picture.

Valuation is just ok:

Avis Budget is trading with a forward 12 month PE ratio of 11.6.  This is not large, but above the five year median value of 9.4.  Likewise, the price to sales ratio is 0.4 and appears low at face value, but is slight ahead of the five year median of 0.3.  Lastly, the company is priced at 1.7 times free cash flow which is rich to the five year median of 1.0.

Alternative:

Those looking for exposure in the transportation rental space may want to explore Amerco (UHAL) a Zacks Rank #1 (Strong Buy).  Amerco has strong upward momentum to earnings estimate revisions and is reasonably valued.    

Amerco is the holding company for U-Haul which rents trailers and trucks, while also providing self-storage operations.  Over the last 30 days, its FY 2014 and FY 2015 Zacks Consensus Earnings per Share Estimates have risen $0.71 to$16.98 and $1.31 to $19.44 respectively.  It is priced at 10.2 times forward 12 month earnings per share which is slightly below the five year median of 11.0.

Conclusion:

The rental car market looks cool in terms of the trend in earnings expectations to the detriment of Avis, but investors have an alternative in trailer and truck rental in Amerco.  

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