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Avis Budget Continues to Expand Despite Stiff Competition

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Avis Budget Group, Inc. (CAR - Free Report) is focusing on geographic expansion, connected car fleet growth and technology enhancement.

In second-quarter 2018, the company reported mixed results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same. Adjusted EPS of 57 cents outpaced the consensus mark by 2 cents and increased a massive 90% on a year-over-year basis. Revenues totaled $2.3 billion, which missed the consensus estimate by $59 million but improved 4% year over year.

Avis Budget has an impressive surprise history. The company outpaced consensus estimates in each of the trailing four quarters, with an average positive surprise of 43.4%. For the third quarter, consensus estimate moved down 2% over the past 30 days.

So far this year, shares of Avis Budget have declined 23% against the industry’s rally of 11%.

Expansion Strategy in Full Swing

Avis Budget’s expansion strategy has been in full swing. In an effort to enhance its global footprint, the company invests in growing markets where car rental demand is on the rise.  Recently, Zipcar — the leading car-sharing network and subsidiary of Avis Budget —partnered with Volkswagen to add 325 electric Golf to its London offering. It also partnered with the City of Columbus in order to be available to businesses, visitors and a local resident.

Last year, Zipcar forayed into Iceland, Taiwan and Costa Rica. Currently, it has significant presence in over 500 cities and towns across Europe, Asia and North America. By expanding footprint in various countries, Avis Budget has widened its global network and coverage to almost all the major regions of the world.The company’s ongoing partnership with Alphabet’s Waymo (to provide fleet management services to Waymo’s self-driving vehicles in Phoenix) has now expanded to other areas as well.

Furthermore, the company remains focused on expanding its fleet to attract customers. It has recently crossed the 100,000 connected cars mark and the number reflects more than two-fold increase year over year. The massive data generated by these vehicles related to road conditions, accident prone zones, location mapping, weather report as well as user preferences during the driving will actually be a much prized resource for the company, which it can monetize later.

Avis Budget Group, Inc. Revenue (TTM)

Technology Enhancements

Avis Budget’s efforts to enhance its technology and improve offerings are encouraging. The company is consistently trying to simplify customers’ online interaction to make the reservation, pick-up as well as return process easier and more user-friendly. Further, Avis Budget entered into partnerships with various product and technology companies to enhance user experience with mobile and technology capabilities.

By virtue of its partnerships with Alphabet and Amazon, users are likely to have voice-controlled access to the Avis Budget’s services via Google Assistant and Amazon Alexa enabled devices. The company also progressed significantly toward having a global integrated demand fleet pricing yield management system called DFP. This system is capable of optimizing pricing and fleet decisions on the basis of available demand.

Risks

Operating in the vehicle rental industry, Avis Budget faces intense competition from other players, mainly on grounds of pricing. The company might lose rental volumes if it is unable to match up to industry pricing standards. An attempt to capture volumes by reducing prices may affect Avis Budget’s overall performance in case of persistently high operating costs. Apart from this, pricing depends a lot on the size of the rental fleets and supply of vehicles in the industry. If the company fails to adjust its rental fleet size in response to demand fluctuations, it may impact pricing and lead to loss of market share.

Also, the company’s rental business experiences seasonal variations. Customer demand remains comparatively low in fall and winter seasons, and high during the spring and summer vacation periods in most of countries in which Avis Budget operates. The company changes its fleet size during the course of a year to manage these seasonal variations. Seasonality causes considerable fluctuations in revenues and profits, and makes forecasting difficult.

Zacks Rank & Key Picks

Currently, Avis Budget is a Zacks Rank #3 (Hold) stock. Some better-ranked stocks in the broader Business Services sector include CRA International , FTI Consulting (FCN - Free Report) and NV5 Global (NVEE - Free Report) . While CRA International and FTI Consulting sport a Zacks Rank #1 (Strong Buy), NV5 Global carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CRA International, FTI Consulting and NV5 Global have an impressive surprise history with a positive earnings surprise of 38.6%, 58.3% and 12.7%, respectively.

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