We downgraded our recommendation on Avis Budget Group
Inc. ( CAR ) to Neutral as the company trimmed its
revenue outlook for fiscal 2012, following lower-than-expected net
sales results for the second quarter of fiscal 2012. However, we
believe Avis Budget's continuous efforts of introducing new ideas
and investments in technology upgrade will likely neutralize the
Avis Budget's net revenue of $1,866 million for the second quarter
of fiscal 2012 fell short of the Zacks Consensus Estimate of $1,898
million. Consequently, the company lowered its fiscal 2012 revenue
guidance range to $7.2 - $7.5 billion from $7.3 - $7.6 billion
However, sustained focus on productivity and cost containment
initiatives along with lower fleet costs drove Avis Budget to post
better-than-expected bottom line performance. The company's
adjusted earnings of 94 cents per share surged over 49% from the
year-ago quarter and beat the Zacks Consensus Estimate of 70
Going forward, we believe the ongoing global economic sluggishness
may have an adverse impact on the travel trends. Nevertheless, in
our view, Avis Budget's strong focus on cost reductions will help
the company achieve its goal of higher operating margins.
Further, the leading general-use vehicle rental company with a
formidable network of more than 10,000 rental locations and 350,000
vehicles in sync with its strategy to expand geographically
continues to pro-actively look for strategic acquisitions and
The acquisition of Avis Europe in October 2011 was an important
step in this direction. Currently, the company remains on track
with its integration plans for Avis Europe and expects its 2012
results to gain annual synergies of over $35 million, within the
first anniversary of the acquisition.
Another core global strategy in Avis' kitty is that of partnering
with leading travel brands to expand its customer reach while
creating additional demand. One such partnership of recent times
includes its tie-up with leading German automobile club,
Allgemeiner Deutscher Automobil-Club, which is based on the value
of its brands and its ability to provide synergies to its partners
that will benefit their brands and businesses.
Avis has always tried to capitalize on the other inbound revenue
opportunities by focusing on new ideas and investments in its
brands and technology upgrade. The company has installed virtual
car rental technology in over 25,000 vehicles.
The technology permits travelers to reserve, pick up and return
rental vehicles through their smart phones. Additionally, they
receive an automated electronic receipt after the completion of the
rental, enabling the company to minimize cost while enhancing
Moreover, in a drive to further enhance rental experience for its
customers and making travel more convenient, Avis recently
kicked-off its Avis Preferred(R) Select & Go service at 25
airports across the United States. This service will provide
registered customers three unique facilities including driving
their pre-assigned vehicles directly from the airport, exchanging
their car from a designated area without additional charge and
upgrading their vehicle from a designated area for an additional
Avis had initially introduced this vehicle selection service in
June 2012, with a mission to cover 50 airport locations around the
United States and Canada by the end of the year 2012.
AVIS BUDGET GRP (CAR): Free Stock Analysis
DOLLAR THRIFTY (DTG): Free Stock Analysis
HERTZ GLBL HLDG (HTZ): Free Stock Analysis
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Avis Budget competes with Hertz Global Holdings
Inc. ( HTZ ), Enterprise Rent-A-Car and Dollar
Thrifty Automotive Group Inc. ( DTG ).
On account of a host of positives offset by the concerns of lowered
guidance, the company maintains a Zacks #3 Rank, indicating a
short-term Hold rating.