Avis Budget Group Inc. (CAR), the leading global car rental company, remains on our Neutral list.
A well-diversified customer base, good pricing power and an aggressive expansion policy facilitate Avis Budget to stay abreast in the soft economic environment. Moreover, we expect incremental cost savings from its Performance Excellence initiative as well as 5-point cost-reduction and efficiency improvement plan to boost profitability.
Furthermore, Avis Budget remains focused on expanding its operations through acquisitions and joint ventures. In order to enhance its global footprint, the company is investing in other emerging markets where car rental demand is rising.
Avis Budget’s urge to exploit new avenues was evident from the recent acquisition of Zipcar Inc., wherein the company widened its offerings from car rental to car sharing. We believe that these strategies, along with better customer support systems will boost the company’s top line.
We are also impressed by Avis Budget’s bottom-line performance in first-quarter 2013. The company came out strong with earnings rising twofold compared to the Zacks Consensus Estimate, driven by strong pricing trends in North America amid an unstable European economy.
Buoyed by better-than-expected quarterly results along with new business opportunities from the recently acquired Zipcar Inc., management provided an encouraging revenue and earnings outlook for 2013.
However, we remain anxious about the stock’s future performance due to a possible rise in fleet costs in North America in 2013, which may adversely affect its margins. The company also remains vulnerable to risks of foreign operations and is heavily dependent on third-party distribution channels.
Given the pros and cons of the stock, we prefer to remain on the sidelines and maintain our Neutral recommendation. This is supported by the company’s current Zacks Rank #3 (Hold).
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