Avis Hit 52-Wk High, Momentum Gained from Strong Q2 Earnings


Shares of Avis Budget Group, Inc. (CAR) achieved a new 52-week high of $63.38 yesterday before closing trade at $63.03. The stock has been gaining momentum since it reported robust financial results for second-quarter 2014 on Aug 4. Notably, this vehicle rental company amassed a return of 8.4% since the second quarter results and 55.8% in the year-to-date period.

The company posted better-than-expected second quarter results mainly benefiting from strong volume growth and improved pricing for both leisure and commercial travels in North America, coupled with the company’s focus on speeding up growth in its most profitable channels.

Second-quarter 2014 adjusted earnings per share of 68 cents grew 36% from the prior-year earnings and surpassed the Zacks Consensus Estimate of 63 cents. Avis Budget’s net revenue increased 10% year over year to $2,194 million in the quarter and outdid the Zacks Consensus Estimate of $2,140 million. Revenue growth was primarily driven by an 8% rise in rental days and improved pricing in North America.

Other than this, the recent momentum in the stock was mainly driven by a rebound in leisure and business travels owing to recovery in the U.S. economy and increased spending by individuals. Furthermore, while the company’s growth is mainly coming from an uptick in travel demand, the integration of its Zipcar and Payless Car Rental businesses are also progressing well.

Apart from recent positive industry trends, we believe that the company’s record of beating quarterly earnings expectations and sustained focus on increasing its global footprint make the stock an attractive option for investors. With respect to earnings surprises, this Zacks Rank #1 (Strong Buy) company has posted positive surprises in 6 of the last 7 quarters with an average beat of 34.8%. The company’s long-term EPS growth rate is 31.4%, over twofold from the peer group average of 15.5%.

This leading car rental company currently trades at a forward P/E of 21.1x, in line with its peer group average. Its last traded price is 4.5% above the Zacks Consensus average analyst price target of $60.33. Average volume of shares traded over the last 3 months stands at approximately 1,367.2K.

Apart from Avis Budget, Newell Rubbermaid Inc. (NWL), Archer Daniels Midland Company (ADM), and Deckers Outdoor Corp. (DECK) also hit 52-week highs of $33.64, $50.00 and $95.00, respectively, on Aug 11, 2014.

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