Shares of Avis Budget Group Inc. (CAR) soared to a new 52-week high of $56.05 on Thursday, Apr 17, 2014, following the company’s declaration of an increase in its share repurchase program. The latest buyback reflects the company’s sound financial position and favorable prospects.
The company, on Thursday, revealed that its board of directors has increased the outstanding amount of share repurchase authorization to $300 million from the current outstanding amount of $65 million. The $65 million remaining authorization was part of the company’s $200 million share buyback program authorized in August last year.
Of late, this major vehicle rental company had stopped dividend payments and share repurchase programs due to a downfall in its business. However, in Aug 2013, Avis Budget initiated a share buyback program based on the growth initiatives, which have improved its financial position.
Since then, the company repurchased almost $135 million worth of its common stock. Avis Budget’s move of increasing the share repurchase authorization reflects its commitment to enhance long-term value for shareholders. It also depicts the company’s ability to boost earnings as well as cash flows in the long run.
Avis Budget’s strong balance sheet, along with its cash flow generation ability, provides financial flexibility to undertake shareholder-friendly moves. The company generated free cash flow of $460 million in 2013 and had cash and cash equivalents $693 million at year-end.
Share repurchase programs are frequent among companies with a stable cash position and healthy cash flow. Apart from Avis Budget, Cameron International Corporation (CAM) and Tractor Supply Company (TSCO) raised buyback programs in the recent past.
We believe that share repurchases not only enhance shareholders’ return but raise the market value of the stock as well. Looking ahead, Avis Budget, which competes with Hertz Global Holdings Inc. (HTZ), remains confident of its growth potential, thereby raising hopes for a further increase of shareholder value through dividend payouts and share buybacks.
Currently, Avis Budget carries a Zacks Rank #3 (Hold).