On Feb 20, 2013, we have upgraded our long-term recommendation
Avis Budget Group Inc.
) to Neutral, based on the company's robust sales and improved
earnings performance for the fourth quarter of 2012 and an
encouraging 2013 outlook. The company carries a Zacks Rank #3
Why the Upgrade?
Avis Budget posted better-than-expected bottom line results
for the fourth quarter of 2012, significantly narrowing its loss,
benefitting from robust top-line performance as well as improved
margins. Adjusted loss per share of $0.07 fared better than the
Zacks Consensus Estimate of a loss of $0.08 and improved 50% from
a loss of $0.14 delivered in the prior-year quarter.
Avis Budget's net revenue increased 4% to $1.698 billion from
$1.630 billion in fourth-quarter 2011, beating the Zacks
Consensus Estimate of $1.641 billion.
Further, the company provided encouraging revenue and earnings
outlook for 2013. The company expects full-year 2013 total
revenue to come in between $7.6 billion and $7.8 billion, with
adjusted earnings of $1.90-$2.45 per share.
It is to be noted that the company has a history of beating
the Zacks Consensus numbers. The company has posted positive
surprises in 3 of the last 4 quarters. The average positive
surprise in the trailing four quarters comes to 78.7%.
The company continues to witness significant strength driven
by the positive travel demand trends, while the integration of
its Avis Europe and Apex Car Rentals businesses is also
progressing smoothly. Moreover, it expects incremental cost
savings from its Performance Excellence initiative as well as a
five-point cost-reduction and efficiency improvement plan, which
should boost profitability.
Avis Budget is aggressively expanding its operations through
acquisitions and joint ventures. Moreover, in an effort to
enhance its global footprints, the company is investing in other
growing markets where car rental demands are speeding up. We
believe that these strategies along with better customer support
systems will boost the company's top line.
However, we remain cautious over the stock's future
performance due to a possible rise in fleet costs in North
America in 2013, which may adversely affect its margins.
Additionally, the company remains prone to risks of foreign
operations as well as heavy dependence on third party
Other Stocks Worth Considering
Other stocks worth considering in the business services
Hertz Global Holdings Inc.
United Rentals Inc.
Performant Financial Corporation
). All these companies hold a Zacks Rank #2 (Buy).
AVIS BUDGET GRP (CAR): Free Stock Analysis
HERTZ GLBL HLDG (HTZ): Free Stock Analysis
PERFORMANT FINL (PFMT): Free Stock Analysis
UTD RENTALS INC (URI): Free Stock Analysis
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