QUOTE AND NEWS
Saving to Invest  Jun 30 
If you are in the market to buy a new car or just looking for a reason to upgrade your existing car, then you could not have picked a better time than now. Apart from local and foreign automakers desperately cutting prices to stay in business or...
Market Intelligence Center  Jun 25 
Avis Budget (CAR) leads the list of top gainers so far today and is now at $5.12, up $.67 (15.06%) on volume of 4,359,529 shares traded. Over the last 52 weeks the stock has ranged from a low of $0.34 to a high of $9.98. Avis Budget stock has been...
StreetInsider.com  Jun 25 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Avis+%28CAR%29%2C+Hertz+%28HTZ%29+Execs+Comment+on+NJ%27s+Proposed+Car+Rental+Excise+Tax/4754626.html for the full story.
Market Wire  Jun 17 
PARSIPPANY, NJ -- (Marketwire) -- 06/17/09 -- Budget Truck Rental announced today a new relationship with AARP to provide AARP members with savings. AARP members will save 10 percent on weekend rentals (Friday-Saturday), and 20 percent on mid-week
Market Wire  Jun 15 
PARSIPPANY, NJ -- (Marketwire) -- 06/15/09 -- Avis Budget Group, Inc. (NYSE: CAR) today announced that it has posted an investor update presentation to its website at www.avisbudgetgroup.com/investor_relations. The presentation, which will be
Market Intelligence Center  Jun 11 
Avis Budget (CAR) was upgraded today by analysts at Barclays Capital and the stock is now at $4.85, up $0.34 (7.54%) on volume of 1,182,587 shares traded. The analysts upped CAR to Equal Weight from Underweight. Over the last 52 weeks the stock...
ABRN  Jun 8 
The Center for Automotive Research (CAR) is hosting Management Briefing Seminars to create a forum to discuss the future of manufacturing, innovation, policy and the government?s new role, powertrain developments and financial implications.
Market Wire  May 27 
PARSIPPANY, NJ -- (Marketwire) -- 05/27/09 -- Avis Budget Group, Inc. today announced that Avis and Budget have been exclusively selected as Air Canada's preferred worldwide car rental suppliers. Air Canada customers can now reserve a rental car from
Market Wire  May 26 
PARSIPPANY, NJ -- (Marketwire) -- 05/26/09 -- Avis Budget Group, Inc. (NYSE: CAR) announced today that it has obtained commitments for approximately $325 million of operating lease financing for vehicles it plans to add to its U.S. car rental fleet
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BULLS: REASONS TO BUY

 
66% agree
 
Valuation is low

BEARS: REASONS TO SELL

 
42% agree
 
Do not expect growing profits in this environment.

 
CAR AT A GLANCE
P/E -0.497 
EV/EBITDA 18.2HIGH
ROA -8.6%LOW
ROE -165.7%AVG
Debt to Equity 232VERY HIGH
Current Ratio 1.22AVG
Interest Coverage Ratio -10.5VERY LOW
 
 
 
 
 
 
 
 
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Avis Budget Group is the largest publicly-traded car rental company in the U.S. It manages a fleet of approximately 410,000 cars and trucks through 6,700 locations and two brands, Avis and Budget. In 2006, Avis Budget generated over 80% of its revenue from airport locations.[1] Its Avis and Budget brands combined command over 30% market share in the airport car rental business, just ahead of the Hertz (28%).[2] However, privately-held Enterprise Rent-a-car is more than twice as large as runner-up Avis Budget by market share. Enterprise generates most of its revenue from local, off-airport locations.

With so much of its business at airports, the company is highly dependent on the airline travel industry. Things that hurt air travel - including terrorism, recessions and increased oil prices - can dramatically affect demand for rental cars. [3] Furthermore, because the company purchases 74% of its fleet under special repurchase or guaranteed depreciation programs (whereby they can sell vehicles back to the manufacturers at a certain price) with Ford Motor Company (F) and General Motors (GM), they are subject to risks related to these manufacturers financial troubles.

[edit] Business Overview

Avis Budget rents its approximately 410,000 cars and trucks through 6,700 locations, drawing most of its revenue (81% in 2006) from airport locations.[4] The company's two brands, Avis and Budget, target different segments of the market, with Avis primarily a business/upscale leisure option and Budget a value-oriented brand targeted toward more cost-conscious consumers. Individually, they enjoy a 19.9% and 10.4% market share, respectively.

The company also services the residential hauling and moving market with its local or one-way Budget rental trucks operated from its 2,400 dealers nationwide.


[edit] Financial Performance

Below are revenue and operating metrics for the company. While most of the company's recent losses have been the result of one-time write-offs and costs associated with its spin-offs of Wyndham Worldwide (WYN) and Realogy (H), Avis has still struggled to remain profitable, effectively hovering around the break-even point.

image: CAR_rev.PNG

Image: CAR_operating.PNG [5]

[edit] Trends and Drivers

  • Airline Travel. Over 80% of the company's car rental business in 2006 came from travelers who rented vehicles upon reaching their airport destination. Indeed, the Avis and Budget brands combined enjoy the largest market share and substantial brand recognition at airports.[6] During periods of heavy traveling and vacationing, the company benefits from the tailwinds of increased traffic at its airport locations. Conversely, disruptions to travel, including terrorist attacks, natural disasters, or recessions (during which consumers and businesses cut spending on non-essential travel and vacation) adversely affect the company's bread-and-butter car rental business. Presumably, the Avis brand is more resilient than the Budget brand during times of recession and generally poor travel as it targets both businesses with more regular travel needs and a generally higher-income customer.
  • The company is subject to problems associated with domestic auto manufacturers. The majority of the company's rental vehicles are purchased from Ford or GM. CAR enters into repurchase or guaranteed depreciation programs, in which they can sell vehicles back to the manufacturers at a certain price for the car after a certain period of use. The arrangements mitigate the risk that the value of the cars falls below expected levels after the company is through using them (i.e. "residual risk"). But the continuation and success of these arrangements depends on the ability of the manufacturers to pay their obligations when the company wishes to sell back vehicles. They also depend on the ability of the manufacturers to be financial willing and able to offer vehicles on terms with low residual risk. Because these companies have been struggling with credit problems and operating deterioration, Avis Budget faces the trickle-down risk of these firms' continued troubles.[7]
  • Demand for asset-backed securities largely determines the attractiveness of financing available for the company's fleet. Like most car rental companies, Avis Budget finances its fleet of vehicles with substantial debt, often packaging and securitizing debt in the form of an asset-backed security using the financed cars as collateral. If Wall Street's appetite for these securities dissipated or if interest rates rose due to factors such as rating agency downgrades, collateral impairments, or credit insurer financial deterioration, Avis's ability to raise capital on good terms can be adversely affected. Currently over $5 billion of Avis' $7 billion+ indebtedness is asset-backed debt.[8] This heavy leverage places the company at greater risk of failing to meet debt covenants and greater risk of not being able to raise more capital on favorable terms.
  • Rising oil prices. An increase in fuel prices has two adverse effects on the company. First, it directly discourage use of rental cars, since customers must fill the tank during the period they rent the vehicle. Second, it leads to drops in airline travel, which, as mentioned above, is a driving force of the company's business. Because the rental industry is so price competitive and because drivers will avoid frequent travel and driving given high oil prices, passing costs on to customers is difficult to impossible.

[edit] Competition

The auto rental industry is highly competitive. The company's main car rental competitors are Hertz Global Holdings (HTZ), Dollar Thrifty Automotive Group (DTG), Vanguard Brands, and Enterprise Rent-a-Car. [9]. Generally, the company competes primarily with Hertz and Dollar Thrifty for airline-related rental business. Enterprise, which is privately held, has a U.S. market share nearly double that of Avis Budget and sports a larger car fleet and higher revenues. The company focuses on off-airport business, including "loaners" and other travel.

The domestic auto rental industry is estimated at around $20 billion per year and includes nearly 2 million cars.[10] The industry tends to be consolidated in a few large players and then fragmented with several smaller companies with significantly less market share. Below is a comparison of relevant operating metrics for each of the major players in the auto rental industry.

Company US Rev. 2006 ($M)[11] Domestic Fleet International Fleet Revenue/Domestic Car US Airport Market Share[12] Total US Market Share[13]
Avis Budget Group (CAR) $4,109 329,350 53,310 $12,476.09 30.3% 19.6%
Hertz Global Holdings (HTZ) $4,385 310,000 180,000 $14,144.60 28.4% 18.4%
Vanguard Brands N/A 209,400 N/A N/A 19.7% 12.4%
Dollar Thrifty Automotive Group (DTG) $1,660 142,857 N/A $11,620.01 11.6% 8.5%
Enterprise Rent-a-Car $9,000 [14] 630,066 247,934 $11,109.95 7.6% 37.4%


[edit] Market Share

Avis operates among three other competitors in the U.S. rental car industry of which Enterprise Rent-A-Car dominates with nearly twice the market share of its closest competitor, Hertz.[15] Avis follows closely behind Hertz and both companies have almost three times the market share of Dollar Thrifty.[16]

IBIS World Industry Report
IBIS World Industry Report[17]



[edit] Footnotes

  1. Avis 2006 Annual Report, "Business," pg 1
  2. HTZ 2006 Annual Report, pg 17
  3. 2006 CAR Annual Report, "Risk Factors," pg 17
  4. Avis 2006 Annual Report, "Business," pg 1
  5. All figures compiled from 2006 Avis Annual Report
  6. 2006 HTZ Annual Report, pg 17
  7. CAR 2006 Annual Report, "Risk Factors," pg 16
  8. 2006 CAR Annual Report, pg 45.
  9. 2006 CAR Annual Report, "Competition," pg 11-12
  10. Auto Rental News 2006 Report
  11. Figures compiled from company annual reports or, where not available, Auto Rental News estimates
  12. Data from HTZ 2006 Annual Report, "Competition," pg 17
  13. Data compiled from fleet sizes of Auto Rental News 2006 Report
  14. Fortune Magazine, "The big surprise is Enterprise", June 2006. Estimate based on fiscal year ending 7/31/06.
  15. IBIS World Industry Report - Rental Car Services & Leasing in the US "Key Competitors" pg.20
  16. IBIS World Industry Report - Rental Car Services & Leasing in the US "Key Competitors" pg.20
  17. IBIS World Industry Report - Rental Car Services & Leasing in the US "Key Competitors" pg.20
 
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