Shares of car rental company Avis Budget Group Inc. CAR are up more than six-fold since bottoming at $6.35 last March and three catalysts could help lift shares even higher, according to BofA Securities.
The Avis Budget Analyst: Aileen Smith initiated coverage of Avis Budget Group's stock with a Buy rating and $50 price target.
The Avis Budget Thesis: Avis Budget operates multiple car and truck rental brands and also has exposure to car-sharing through Zipcar, Smith wrote in the note. The company is considered the "only investible" name in the car rental space for three reasons.
1. 2021 could represent the early days of a multi-year recovery after the market hit a trough in 2020 amid the COVID-19 pandemic. Specifically, year-over-year revenue was down 68% in the second quarter of 2020 and improved to down 44% in the third quarter and down 35% in the fourth quarter. For the full-year 2021, revenue is expected to rise 21% year-over-year and grow at a compounded annual growth rate of 10% through 2025.
2. Management eliminated over $2.5 billion in costs throughout 2020 and generated a positive EBITDA/FCF by the third quarter. Cost-saving measures could translate to 8% adjusted EBITDA margins in 2021 and improve to the low-double digits through 2025.
3. Avis Budget is well-positioned to gain market share from Hertz that is the weakest player in the space and undergoing a bankruptcy process. Avis Budget could also gain share as consumers decide against flying or traveling by trains.
CAR Price Action: Shares of Avis Budget Group closed Monday at $41.02.
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