On Monday, Jefferies maintained a Buy rating on Avis Budget Group (NASDAQ:CAR) shares and raised the price target to $150 from $140. The firm's analyst pointed out that despite mixed third-quarter results, Avis Budget continues to prioritize pricing strategies and fleet updates. The analyst believes that the stock is currently undervalued, with the market not fully recognizing the potential for significant earnings growth in 2025.
The company's focus on improving Daily Pricing Units (DPU) as the 2025 model vehicles are delivered was highlighted as a key driver of the anticipated earnings acceleration. Stable or increasing pricing, along with reduced vehicle interest expenses, were also cited as factors that will likely contribute to the company's financial performance in the upcoming year.
In addition to vehicle-related improvements, the execution of technology and cost optimization programs is expected to play a role in Avis Budget's future success. The analyst's commentary underscored confidence in the company's strategic initiatives and their potential impact on earnings.
Avis Budget's solid liquidity position was also noted, providing the company with a stable financial foundation. The analyst reiterated the Buy rating based on these observations, signaling a positive outlook for the company's stock amidst its ongoing business developments.
In other recent news, Avis Budget Group's third quarter results for 2024 showed strong performance with a revenue of nearly $3.5 billion and an adjusted EBITDA of $503 million.
Despite a slight decrease in rental days in the Americas, stable pricing was maintained due to the company's focus on fleet management. The company also saw growth in its international segment and launched a new customer app to enhance user experience.
However, Goldman Sachs (NYSE:GS) has lowered its price target for Avis Budget Group from $90.00 to $85.00, maintaining a Neutral rating on the stock. This follows a review of Avis Budget's fourth quarter EBITDA outlook, which now stands at $7 million, a significant decrease from the previous $143 million forecast.
The firm anticipates a steeper seasonal decline in Americas RPD (revenue per day) than in pre-COVID times, with a year-over-year decrease of 2% for the fourth quarter.
Despite these recent developments, Goldman Sachs maintains its 2025 EBITDA estimate for Avis Budget at approximately $1 billion. Avis Budget Group also reported a $40 million loss from vehicle sales, contrasting with $145 million in gains last year. The company, however, remains optimistic about the fourth quarter, expecting high vehicle utilization and demand.
InvestingPro Insights
Recent data from InvestingPro adds depth to Jefferies' bullish stance on Avis Budget Group (NASDAQ:CAR). The company's P/E ratio of 8.31 and adjusted P/E ratio of 7.41 for the last twelve months as of Q3 2024 suggest that the stock is indeed trading at a low earnings multiple, aligning with the analyst's view that CAR is undervalued.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's future prospects. This action supports the analyst's positive outlook on potential earnings growth. Moreover, the stock's valuation implies a strong free cash flow yield, which could provide Avis Budget with financial flexibility to fund its strategic initiatives, including fleet updates and technology improvements.
It is worth noting that while the stock has seen a significant return over the last week (7.75% according to InvestingPro data), it has fallen considerably over the past year, with a one-year price total return of -51.56%. This decline may present an opportunity for investors who share the analyst's optimistic view on the company's future earnings potential.
For readers interested in a more comprehensive analysis, InvestingPro offers 12 additional tips for Avis Budget Group, providing a deeper understanding of the company's financial health and market position.
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