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Reasons to Retain Avis Budget (CAR) Stock in Your Portfolio

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Avis Budget Group, Inc. (CAR - Free Report) shares have gained a massive 79.8% year to date, significantly outperforming the 56% rally of the industry it belongs to. The company’s earnings are expected to increase 97.6% in 2021 and more than 100% in 2022.

What’s Supporting the Rally?

Avis Budget operates through distinct global brands that focus on different market segments and complement other brands in their respective regional markets. The company’s ability to cater to a wide range of mobility demands helps it expand and strengthen its global foothold through organic growth.

The company remains focused on expanding its connected vehicles fleet, as this allows cost reduction and streamlining of operations. This also enables enhanced tracking of idle vehicles and automated processing of ready-to-rent cars.

Avis Budget has a consistent track record of rewarding shareholders through share repurchases. In 2020, the company repurchased shares at a cost of $119 million. In 2019, 2018 and 2017, the company bought back shares worth $62 million, $200 million and $210 million, respectively. Such moves underline the company’s confidence in business and help instill investors’ confidence in the stock by positively impacting earnings per share.

Some Risks

Avis Budget's debt-to-capital ratio of 1.00 was significantly higher than the industry's 0.71 at the end of the fourth-quarter 2020. An increasing debt-to-capitalization ratio indicates that the proportion of debt to finance the company’s assets is on the rise and so is the risk of insolvency.

Further, cash and cash equivalent balance of $692 million was well below the long-term debt level of $11 billion, underscoring that the company doesn’t have enough cash to meet this debt burden. The cash level, however, can meet the short-term debt of $19 million.

Zacks Rank and Stocks to Consider

Avis Budget currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are The Interpublic Group of Companies (IPG - Free Report) , Cross Country Healthcare (CCRN - Free Report) and NV5 Global (NVEE - Free Report) . The Interpublic Group of Companies and NV5 Global carry a Zacks Rank #2 (Buy), while TeleTech sports a Zacks #1 Rank (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term expected earnings per share (three to five years) growth rate for Interpublic, Cross Country Healthcare and NV5 Global is pegged at 2.4%, 12% and 16.9%, respectively.

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