On Thursday, Goldman Sachs (NYSE:GS) adjusted its stance on Avis Budget Group (NASDAQ:CAR), moving the car rental company's stock rating from Sell to Neutral. The firm also increased its price target to $130.00, up from the previous $118.00. The revision follows a significant decrease in the company's share price since it was added to the Americas Sell List on December 7, 2023.
The analyst from Goldman Sachs stated that the original thesis, which prompted the Sell rating in December 2023, has largely played out. At the time, the firm believed the market overvalued Avis Budget's pricing power and noted potential risks in the company's cost structure and share repurchase program. Since then, Avis Budget's shares have dropped by 36%, in contrast to a 13% increase in the S&P Index, with a reset of estimates around 30% lower after the fourth quarter of 2023.
Despite the ongoing pricing and residual value pressures in the car rental industry, Goldman Sachs now perceives Avis Budget to be in a relatively stronger position than its competitors. This is attributed to Avis Budget's leaner cost structure, reduced exposure to electric vehicles, and a slightly younger fleet mix. These factors are believed to potentially help the company fare better than its peers.
Goldman Sachs also mentioned that while estimates for the year 2024 may have reached their lowest point, there remains some downside risk to the forecasts for 2025. This outlook justifies the Neutral rating as the firm awaits further evidence of stabilization in pricing within the industry. The raised price target from $118 to $130 reflects a recalibration of expectations for Avis Budget Group's stock performance.
InvestingPro Insights
Following the recent update from Goldman Sachs on Avis Budget Group (NASDAQ:CAR), investors may find additional context from InvestingPro metrics and tips. Avis Budget operates with a significant debt burden and has been aggressively buying back shares as per InvestingPro Tips. The company’s management's commitment to share repurchases could signal confidence in the company's future prospects or an attempt to support the stock price. Moreover, despite analysts having revised their earnings downwards for the upcoming period, they predict the company will be profitable this year.
On the financial front, Avis Budget Group's adjusted market capitalization stands at $4.3 billion, with a notably low adjusted P/E ratio for the last twelve months as of Q4 2023 at 2.6. This could suggest that the stock is undervalued compared to earnings. The company's revenue for the same period was $12.01 billion with a gross profit margin of 39.69%. However, it's important to note that the EBITDA growth has decreased by 29.93% in the last twelve months as of Q4 2023, indicating potential challenges in profitability. Despite a volatile stock price with significant drops over the last three months, there has been a strong return of 13.77% over the last month.
For investors seeking a deeper analysis, there are 14 additional InvestingPro Tips available at https://www.investing.com/pro/CAR, which could provide further insights into Avis Budget Group’s financial health and stock performance. To access these insights, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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