Avis Budget Group Is a New Position for Eminence Capital
Analyzing Eminence Capital's Key Positions in 4Q14 (Part 4 of 15)
Eminence Capital and Avis Budget Group
During the fourth quarter of 2014, Eminence Capital initiated a position in Avis Budget Group (CAR). The fund held 1,435,041 shares of CAR, which accounted for 2.18% of the fund’s 4Q14 portfolio.
About Avis Budget Group
Avis Budget Group, a leading global provider of vehicle rental and car-sharing services, operates through three brands:
Avis
Budget
Zipcar
The Avis and Budget brands are available through CAR and its licensees in more than 175 countries. The company maintains a rental fleet of 545,000 vehicles.
In 2014, Avis completed 35 million vehicle rental transactions. About 67% of CAR’s rental revenue came from on-airport locations. Avis’s mobile applications facilitated 5% of all of the company’s reservations.
Expansion of Zipcar and Payless
In 2013, Avis Budget Group bought Zipcar, a leading car-sharing service provider. Avis also acquired Payless, a car rental company, that same year.
Avis has expanded Zipcar to 44 more colleges and universities. The company also launched Zipcar in Paris and Madrid. In 2015, Avis plans to offer Zipcar services in Australia and Europe.
CAR added 60 new North American locations to its Payless brand in 2014. Avis partnered Payless with its existing partnerships, including Southwest Airlines (LUV). The result was a 15% year-over-year increase in Payless revenue in 4Q14 alone. The company is planning to expand Payless to 25 more North American locations in 2015.
Stronger rental volume and higher pricing in North America
For 4Q14, Avis’s revenues were up 2% to $1.9 billion. Higher rental volumes and increased pricing in North America drove this growth. Hertz Global Holdings (HTZ) and Ryder System (R) also benefited from increased pricing and demand in North America.
For the fourth consecutive quarter, CAR raised its prices in North America. Adjusted EBITDA (or earnings before interest, tax, depreciation, and amortization) grew 13% to $129 million in 4Q14.
In 2014, Avis’s revenue rose 17% to $8.5 billion. EBITDA grew 14% to $876 million. EPS (or earnings per share) grew 35% to $2.96.
Avis repurchased $300 million of stock with $90 million in the fourth quarter. Free cash flow was $456 million.
2015 outlook
Avis expects its North American revenue to increase by 6% to 8% in 2015. The company could face headwinds from changes in currency exchange rates. The effect of currency movements could be five points of revenue growth.
CAR’s upper-level EBITDA guidance for 2015 is $1 billion. Double-digit growth for Budget in Europe and the acquisition of the licensee for Scandinavian Avis and Budget will likely be the main drivers of international revenue. CAR expects the licensee to generate approximately $100 million in revenue.
Avis anticipates diluted EPS growth of 6%–27% to $3.15–$3.75 in 2015. The company expects free cash flow to total $450 million to $525 million.
You can gain exposure to Avis Budget Group by investing in the iShares Russell 1000 Growth ETF (IWF). CAR accounts for 0.06% of IWF.
For more details on Avis Budget Group, read Viking Global discloses position in Avis Budget Group.
In the next part of this series, we’ll explore Eminence Capital’s position change in B/E Aerospace.
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