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Bear of the Day: Avis Budget Group, Inc. (CAR)

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Avis Budget Group, Inc. (CAR - Free Report) stock has struggled for the better part of five years, and its volatility alone might make it not worth the average investor’s headaches. CAR shares tumbled, like the rest of the market as coronavirus turned in to a global pandemic.

Avis Budget’s shares have soared off its March lows and are up big in the last month. However, its near-term outlook remains rough and it might face a bumpy road ahead as travel remains hamstrung by the virus.

What’s Going On?

Avis Budget is a rental car powerhouse and also owns car-sharing firm Zipcar. The firm’s Q1 sales dipped only 9%. But its second quarter revenue, which it posted in late July, tumbled 67% and it reported an adjusted loss of -$5.60 per share, with misses on both the top and bottom line.

CAR has tried to navigate the completely uncharted and uncertain territory that has seen air travel fall off a cliff. This includes slashing expenses and officially hiring interim CEO Joe Ferraro in mid-June. More recently, the company announced in mid-August that its CFO was stepping down after 18 months on the job. He will be replaced by Avis board member Brian Choi.

 

 

 

 

 

 

 

 

 

 

 

 

Outlook

The nearby chart highlights CAR’s up and down nature over the past five years. This kind of volatility might be a trader’s dream, but it makes it harder on investors with a buy-and-hold mentality. And it’s not just the swings, it is also the fact that shares of Avis Budget have slipped roughly 18% during this stretch, while the S&P 500 climbed 75%.

Looking ahead, our current Zacks estimates call for the firm’s third quarter sales to sink 50%, which would mark an improvement from Q2. And its full-year sales are expected to slip 42%, with FY21 revenue projected to climb 34% above our current year estimate. This helps show that the recovery might be underway.

Bottom Line

At the bottom end, Avis Budget is expected to see its adjusted Q3 earnings sink 99.7% to $0.01 per share. On top of that, its overall earnings estimates have trended heavily in the wrong direction for fiscal 2020 and FY21.

CAR’s negative earnings trends help it earn a Zacks Rank #5 (Strong Sell) at the moment. The stock also holds an “F” grade for Momentum in our Style Scores system and it’s part of an industry that rests in the bottom 11% of our 250 Zacks industries.

Clearly, the stock might be ready to climb if investors prove willing to jump into travel & leisure stocks as a bet on a larger economic reopening and recovery. That said, CAR might be best for more experienced traders that want to get in and out of stocks somewhat quickly.  

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