Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On Aug 30, we downgraded our recommendation on Avis Budget Group, Inc. (CAR - Analyst Report), to Underperform based on the company’s dismal second-quarter 2013 results and the rising fleet costs.

Why the Downgrade?

Estimates for Avis Budget, which provides vehicle rental services, have been declining ever since the company reported second-quarter results on Aug 6. Avis Budget’s second-quarter revenues of $2002.0 million missed the Zacks Consensus Estimates of $2,027.0 million. Moreover, quarterly earnings fell 47% year over year to 50 cents a share; however, it came a penny ahead of the Zacks Consensus Estimate.

Following the results, Avis Budget reaffirmed fiscal 2013 revenues in the range of $7.8–$8.0 billion. However, the company narrowed its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) guidance range to $750–$800 million from $750–$855 million forecasted earlier. Moreover, Avis Budget reduced its median earnings forecast for fiscal 2013 to $2.20 from $2.30 projected previously.

Consequently, we observed that the Zacks Consensus Estimates for 2013 and 2014 fell 6.8% and 7.1% to $2.20 and $2.73, respectively over the last 30 days. With the Zacks Consensus Estimates for both 2013 and 2014 going down, the company now has a Zacks Rank #5 (Strong Sell).

Causes of Concern

The prevalent sluggish economic scenario in both Europe and Australia, along with rising fleet costs continue to weigh upon the company’s performance. However, Avis Budget is optimistic about its disciplined pricing initiatives and expects them to offset a possible rise in its North American business fleet costs.

Nevertheless, we consider this to be difficult, owing to the company’s long-term agreements with corporate bigwigs and the aggressive pricing strategy adopted by competitors. Moreover, the company upped its forecasts for per-unit domestic fleet costs, which are expected to increase nearly 25% to $300 per month in 2013. Hence, Avis Budget’s margins may be under pressure in 2013.

Moreover, Avis Budget is highly dependent on third-party distribution channels. In the reported quarter, nearly 47% of Avis Budget’s domestic car rental reservations came through third-party distribution channels. Consequently, any disruption and termination of relationships with third parties or reduction in transaction volume may have an adverse impact on the financial condition and results of the company.

Given the second-quarter performance and Avis Budget’s tepid outlook, we do not see any significant catalyst that could drive the shares in the near term.

Stocks That Warrant a Look

While we prefer to avoid Avis Budget till there are signs of improvement in the company's performance, other retail stocks worth a look include Cardtronics Inc. (CATM - Snapshot Report), comScore, Inc. (SCOR - Snapshot Report) and Interval Leisure Group, Inc. (IILG - Snapshot Report). All these carry a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%