Yahoo Finance Bear of the Day: Avis Budget Group (CAR)
Company Overview
Zacks Rank #5 (Strong Sell) stock Avis Budget Group (CAR) is a leading provider of vehicle rental services globally. The company offers various rental options, including cars, trucks, and vans, catering to leisure and business travelers. Avis Budget operates through its well-known brands, such as Avis, Budget, Zipcar, and Payless, providing customers with convenient access to transportation solutions in over 180 countries. With a focus on innovation and customer service, Avis Budget aims to deliver reliable and affordable rental experiences to meet the diverse needs of its clientele.
Car Rental Industry Disruption is Here
Blockbuster Video’s leadership famously dismissed the concept of DVD mail delivery (and later streaming) and declined to acquire Netflix (NFLX). The outcome is well-known – Blockbuster met its demise while NFLX became a Wall Street favorite.
Now, innovation is again reshaping an industry landscape, posing challenges for Avis. Turo, a peer-to-peer car-sharing platform owned partially by public company IAC (IAC), allows individuals to rent out their own vehicles to others. By linking car owners with short-term renters, Turo presents a diverse array of vehicle options. It offers an alternative to conventional car rental services, providing a more comprehensive range of choices. Both car owners and renters enjoy the flexibility and convenience provided by Turo’s platform, often resulting in a more personalized, local experience compared to legacy rental car agencies. It’s akin to Airbnb (ABNB), but it’s for cars. While Turo may not yet threaten Avis’s existence, it’s beginning to disrupt the industry and create potential headwinds in the future.
FOREX Risk Mixed with Slowing EPS
Because Avis Budget generates ~21% of its revenues internationally, the company is susceptible to fluctuations in foreign currency exchange rates. For example, in 2022, the company’s international revenues were adversely affected by $310 million due to shifts in currency exchange rates.
To make matters worse, Zacks Consensus Estimates predict negative earnings growth for full-year 2024, which is highly disappointing when you account for the recent bull market and earnings growth of many other companies on Wall St.
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Poor Price Action Despite Positive EPS Surprises
Investors can learn much observing how a stock reacts to positive news. CAR has delivered positive surprises over the past four quarters, generating an average EPS surprise of 55.46%
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Nevertheless, the stock is down a brutal 40% over the past year, dramatically underperforming the S&P 500’s 32.9% gain over the same period. If CAR can’t perform well after beating Wall St. estimates in a bull market, what happens if the stock misses earnings and the market deteriorates?
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Bottom Line
Amidst the ever-evolving landscape of the car rental industry, Avid Budget’s stock poses several risks, such as FOREX risk, slowing growth, and growing competition.
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Avis Budget Group, Inc. (CAR) : Free Stock Analysis Report
Netflix, Inc. (NFLX) : Free Stock Analysis Report
IAC Inc. (IAC) : Free Stock Analysis Report
Airbnb, Inc. (ABNB) : Free Stock Analysis Report
