On Thursday, Morgan Stanley (NYSE:MS) made a significant adjustment to its price target for Avis Budget Group (NASDAQ:CAR), reducing it from $230 to $190 while retaining an Overweight rating on the shares. The adjustment follows the release of the company's fourth-quarter results, which revealed an unexpected expansion of its fleet size by 30,000 to 40,000 units more than anticipated.
The late delivery of vehicles from the previous year's purchase was cited by Avis Budget as the reason for the fleet increase. This development has led to investor concerns about the company's transparency and its ability to manage fleet size effectively. Morgan Stanley expects the fundamentals to hit a low point with the first-quarter results, projecting an Adjusted Corporate EBITDA of just $18 million for the period as Avis Budget works on reducing its fleet and managing peak fleet cost pressures for the year.
Despite lower earnings forecasts, Avis Budget's current stock price of just over $100 per share represents a valuation of less than 6.5 times FY24 EV/EBITDA and approximately 8 times PE, both of which are significantly below the company's historical averages. Furthermore, the stock is trading at a FY24 free cash flow yield of 13%.
Morgan Stanley's forecast for FY24 includes an Adjusted Corporate EBITDA of $1.169 billion, which incorporates more conservative assumptions regarding fleet costs and interest expenses compared to the company's guidance. This revised outlook is a response to the latest operational developments at Avis Budget Group.
InvestingPro Insights
As Avis Budget Group (NASDAQ:CAR) navigates through its fleet expansion and the associated cost pressures, investors are closely monitoring the company's financial health. According to real-time data from InvestingPro, the company's market capitalization stands at $3.55 billion, with a remarkably low P/E ratio of 2.36, which further adjusts down to 2.15 when looking at the last twelve months as of Q4 2023. This low earnings multiple, as pointed out by Morgan Stanley, suggests that the stock may be undervalued, especially when considering that the company is profitable over the last twelve months. This is further supported by the company's gross profit margin of nearly 39.69% in the same period.
However, CAR's financial position is not without its challenges. InvestingPro Tips indicate that the company operates with a significant debt burden and is quickly burning through cash. These factors, combined with a recent drop in stock price, have led to a 52-week low trading price and have impacted investor sentiment. The RSI also suggests that the stock is currently in oversold territory, which could indicate a potential rebound or further caution depending on broader market conditions.
For investors looking for more in-depth analysis, there are additional InvestingPro Tips available, including insights into earnings revisions and short-term liquidity concerns. With the next earnings date on April 29, 2024, these tips could provide critical guidance for those considering an investment in Avis Budget Group. To access these tips and more, visit https://www.investing.com/pro/CAR and remember to use the coupon code PRONEWS24 for an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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