Why Blue Ridge Capital increased its position in Avis Budget Group

Market Realist

Investor's guide to Blue Ridge Capital's positions in 3Q 2013 (Part 3 of 11)

(Continued from Part 2)

According to 13Gs Blue Ridge Capital filed last month, the hedge fund disclosed new positions in Zulily (ZU) and PBF Energy (PBF). The filings stated that Blue Ridge currently owns 6.05% in Zulily, with 799,811 shares, and a 7.82% stake in PBF, with 3,095,000 shares.

A November 13G filing showed that Blue Ridge increased its position in Avis Budget Group (CAR) and at present owns a 6.17% stake, with 6,613,700 shares.

For more information on Blue Ridge Capital and its investment strategy, please see the last part of this series.

Blue Ridge Capital’s top new buys in 3Q 2013 per its 13F filing were American Homes 4 Rent (AMH), Tesla Motors Inc. (TSLA), Cliffs Natural Resources (CLF), and BlackBerry Ltd. (BBRY). The hedge fund exited its positions in Owens Corning (OC), Equinix Inc. (EQIX), and Realogy Holdings Corp. (RLGY).

Blue Ridge Capital’s two largest stock holdings are Priceline.com Inc. (PCLN) and American International Group Inc. (AIG), which account for 4.88% and 4.52% of the hedge fund’s portfolio, respectively.

Why buy Avis Budget Group (CAR)?

Blue Ridge increased its position in car rental company Avis Budget Group (CAR) to 6.17% in November last year. Car rental stocks performed well last year, mainly due to increasing demand for rental cars in the business and leisure sectors. The segment also saw a consolidation in 2013, with Avis buying Zipcar and Payless Car Rental, while Axis rival Hertz (HTZ) acquired Dollar Thrifty. The space is now dominated by three companies, the privately held Enterprise Rent-A-Car, Hertz, and Avis Budget Group.

Avis’ 3Q 2013 results reflected a combination of volume growth and solid pricing in North America, along with strong results in EMEA. Revenue increased 10%, to $2.4 billion, year-over-year, primarily due to a 6% increase in rental days and the acquisition of Zipcar. However, net income was down 58%, to $118 million, and the EPS of $1.48 missed analyst estimates.

Avis provides vehicle rental services through its Avis and Budget brands. The company said it remains optimistic about how the business is performing, both strategically and operationally. Despite the sequester and partial government shutdown pressure, the company has remained focused on its faster-growing, more profitable segments and channels and on ensuring Avis has cars to capture the available demand. The car rental service provider expects to increase its brand presence with its new portfolio of brands across a network of 180 countries.

Continue to Part 4

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