The recovering U.S. economy is bringing good opportunities for many companies, including Avis Budget (CAR, Financial). The company is pleased to have acquired Avis Europe, Payless and Zipcar in the past, and it is counting on these to contribute well to its growth story in the coming quarters. Besides this, Avis Budget also has aggressive share repurchase program under its capital allocation scheme in which it has already reached $280 million in purchases. It ensures good liquidity position of the company in the market. The company is thinking to park these funds in some growth drivers, strengthening the long term aspects of it.
What next?
For the coming fiscal year, Avis Budget is expecting its share repurchases to total between 300 million and 330 million. It is now focusing on improving the cash flows with this growing repurchase. The cash flows are expected to further rise as a results of some lined up share repurchases and tuck-in acquisitions in future.
Moving ahead, Zipcar acquisition made in the past looks in good shape, and Avis Budget has its eyes on it. With Zipcar, Avis’ position is expected to improve further in the market, making it a leader in providing safe, cost-effective, convenient mobility solutions to city dwellers and other countries. Another exciting fact under Avis Budget’s camp is that it has recently announced its acquisition of its largest licensee. This is a great opportunity for Avis as with this it will now have access to one of the largest airports in North America and Southern California. This agreement is expected to further unlock incremental tuck-in acquisition opportunities in future.
In addition, Avis is now pooling cars between Zipcar and Avis Budget at over 80 locations. With the success it is seeing with it, the company now has an expansion plan for it, and it is now planning to expand this pool over 150 locations all over the U.S. Not only in the U.S. but Avis also is seeing strong contribution from European operations. The company has made significant investment worth $5 million in brand marketing, which is now paying off for it, and is expected to further improve in future. Besides this, Avis Budget is now focusing on making investments in the digital platforms.
Conclusion
Now moving on the fundamentals, the stock is trailing at 33.36 which seems slightly overvalued as compared to the forward P/E of 16.48. However, the company’s strategies are taking shape and expected to benefit the company with good earnings growth in the near term. But for the next five years, the stock looks like a good long-term holding as its earnings are growing at a CAGR of 29.45% which is far better than the industry average of 18.25%. Considering all these facts, I would like to suggest that Avis Budget is a good pick, and investors should definitely include it in their portfolios.
