On Monday, Goldman Sachs (NYSE:GS) adjusted its outlook on Avis Budget Group (NASDAQ:CAR), reducing the price target from $90.00 to $85.00 while keeping a Neutral rating on the stock.
The firm's analyst expressed a conservative stance following the car rental company's third-quarter results for 2024, despite a positive market reaction. The revised fourth-quarter EBITDA estimate now stands at $7 million, a significant decrease from the previous $143 million forecast.
The adjustment comes after reviewing Avis Budget's guidance, which indicated a total company gross DPU (depreciation per unit) of $350 for the fourth quarter and a seasonal transition in Americas RPD (revenue per day). Goldman Sachs has taken a more cautious interpretation of this guidance, modeling a gross DPU of $350 and a net DPU of $400, factoring in higher losses on sales.
Additionally, the firm anticipates a steeper seasonal decline in Americas RPD than in pre-COVID times, estimating a year-over-year decrease of 2% for the fourth quarter. This, combined with anticipated lower volumes due to increased competition and ongoing fleet reduction, is expected to result in minimal EBITDA generation for Avis Budget in the fourth quarter.
Despite the conservative short-term outlook, Goldman Sachs maintains its 2025 EBITDA estimate for Avis Budget at approximately $1 billion. This projection assumes an improvement in fleet costs to $330 DPU and stable RPD. The lowered price target reflects the revised estimates, and the firm remains neutral on the stock, awaiting additional evidence to support a more definitive stance.
In other recent news, Avis Budget Group has reported strong results for the third quarter of 2024. The company's revenue reached nearly $3.5 billion, and an adjusted EBITDA of $503 million was achieved. Despite a slight decline in rental days in the Americas, the company managed to maintain stable pricing, thanks to its focus on fleet management. The company also saw growth in its international segment and launched a new customer app to enhance user experience.
Avis Budget Group also repurchased 526,000 shares for $43 million and issued $700 million in senior notes. However, the company did report a $40 million loss from vehicle sales, contrasting with $145 million in gains last year. Despite this, the company remains optimistic about the fourth quarter, expecting high vehicle utilization and demand.
The company is also exploring opportunities in ride-sharing and autonomous vehicle technology, indicating a forward-looking vision.
InvestingPro Insights
Avis Budget Group's recent performance and future outlook can be further illuminated by real-time data from InvestingPro. The company's market capitalization stands at $3.23 billion, with a P/E ratio of 8.31, suggesting a relatively low valuation compared to earnings. This aligns with an InvestingPro Tip indicating that the company is "trading at a low earnings multiple."
Despite Goldman Sachs' conservative outlook, Avis Budget Group has shown a significant return over the last week, with a 7.75% price total return. This short-term positive momentum is reflected in another InvestingPro Tip highlighting a "significant return over the last week."
However, it's important to note that the company's revenue growth has been negative, with a -1.43% decline in the last twelve months as of Q3 2024. This data point supports Goldman Sachs' cautious stance on the company's near-term performance.
For investors seeking 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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