Avis Budget (CAR) Stop and Go
The near-term outlook for the Avis Budget Group (CAR - Analyst Report) is difficult to ascertain. The truck rental business is experiencing pricing pressure and the economy is weakening. Revenue enhancement and cost-cutting initiatives have been implemented that should fuel significant financial improvements.
However, earnings visibility is limited, especially with a deteriorating economy. Also, historical valuation data is unavailable for Avis Budget Group. Management has lowered guidance for 2008 in view of rising fuel costs, weaker-than-expected enplanements, and lower commercial travel volumes.
The Hold rating is maintained for Avis Budget Group. The target is $4.75 is based on a 5.2 P/E multiple on trailing 12-month EPS, which is approximately where a 5% cyclical growth company (with an average levered balance sheet, but exposed to the risk of falling residual values of its rental fleet) should be valued as the U.S. economy appears to be entering a recession.