Avis Budget Group (CAR) is a Zacks Rank #5 (Strong Sell) that is a global leader in vehicle rentals and mobility solutions, operating a fleet of nearly 700,000 vehicles.
The stock has had a monster move since March, but investors might want to take some profits before the upcoming earnings report.
About the Company
Founded in 1946 and headquartered in Parsippany, the company provides car and truck rentals, car sharing, and ancillary products and services to businesses and consumers.
The company manages several well-known brands, including Avis, which focuses on premium rentals; Budget, which serves more value-conscious customers; and Zipcar, a self-service car-sharing platform.
Avis Budget generates most of its revenue from renting cars and trucks, charging customers for time and mileage, and offering additional products like loss damage waivers and insurance
The stock holds Zacks Style Scores of “B” in Value. The company has a market cap of $7B and pays no dividend.
Reason For Shares Surge
Since the March low, the stock is trading over 200% higher, moving from the $60 level to $190. Some reasons for the bullishness include a tight used car market, solid travel demand and share buybacks. However, the reasoning for the latest surge was news that Pentwater Capital now owns 19% of the company.
This news helped fuel a short squeeze that is still ongoing.
While the move higher in shares is welcomed, the question investors should ask is if it's justified.
Q1 Earnings
Avis Budget reported earnings in early May, posting a 150% EPS mis. This was the fourth miss over the last five quarters, one that came with revenues at $2.43 billion v the $2.52 billion expected. EBITDA swung to a loss of $93 million compared to a $311 million gain a year ago.
In the Americas, revenue declined 4% year over year to $1.91 billion, with rental revenue per day down 3% and per-unit fleet costs up 16%. International trends were similar on pricing, but fleet costs improved 3%. Total rental days reached 39.45 million for the quarter.
Management highlighted progress on fleet rotation, noting a record number of vehicles sold, which is expected to improve vehicle costs sooner than anticipated. They added that advanced reservations are trending positively and that the company remains flexible in managing its fleet in response to shifting demand.
Earnings Estimates Falling
Looking at earnings estimates, analysts have dropped their numbers across all time frames.
Analysts have dropped numbers for the current quarter from $2.64 to $2.02 over the last 90 days. That is a fall of 31%, which is outdone by the current year drop of 69%. Over the last 90 days, those numbers have been lowered to $2.69 from $8.61.
Technical Take
The stock has taken off despite missing earnings and estimates falling. For now, the fundamentals don’t matter, but that could change quickly.
Looking at the charts we see big resistance in the $200-240 area, so the risk reward for those on the long-side might favor exiting the stock.
The $240 level was the selling point from 2022 into 2024 and now the stock is approaching the Q4 2023 highs. A pullback is likely soon and investors interested might want to hold off until the 21-day MA (currently $160) comes into play.
In Summary
Avis Budget Group’s recent rally has been impressive, but this has been driven largely by a short squeeze, strong buyback activity, and a tight used car market.
The fundamentals paint a more cautious picture and if the company continues to miss on EPS and see analysts dropping estimates, the stock will hit a bump in the road. Investors should consider taking profits and look at another name in the transportation space like REV Group (REVG). The stock is a Zacks Rank #3 (Hold) that is coming off an 18% EPS beat.
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Avis Budget Group, Inc. (CAR): Free Stock Analysis Report REV Group, Inc. (REVG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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