Avis Budget at Reasonable Levels

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 and declining enplanements. Also, historical valuation data is unavailable for Avis Budget Group. Management has twice lowered guidance for 2008 in view of weaker-than-expected enplanements and lower commercial travel volumes. The Hold rating is maintained for Avis Budget Group.

The target of $0.75 is based on a 7 P/E multiple on our 2009 depressed EPS estimate, which is approximately where a 5% cyclical growth company (with a levered balance sheet and exposed to the risk of falling residual values of its rental fleet) should be valued with the U.S. economy in a recession.

Read the full analyst report on CAR