Saturday, 2 November 2024
by BD Banks
Avis Budget Group (NASDAQ: CAR) stock is motoring higher today, its stock up 17.7% through 10:50 a.m. ET despite the rental car operator missing analyst forecasts for sales and earnings last night.
Wall Street had predicted Avis would earn $8.18 per share on more than $3.5 billion in sales in Q3, but the company actually reported profits of only $6.65 per share, and sales just under $3.5 billion.
That doesn’t sound like good news, and the truth is arguably even worse than it sounds. Sales for the quarter declined 2% year over year — and earnings were down 60%!
On the plus side, the losses are getting at least a little less staggering. Year to date, Avis’ sales are also down 2%, but earnings fell 89% through the end of the third quarter. I guess you could call that improvement.
Management also noted that it’s working to improve profitability by “prioritizing higher margin business” and improving “vehicle utilization” (i.e., renting out as close as possible to all the cars it possesses).
Also helping per-share profits: Avis bought back 526,000 shares in Q3. Its share count is now 4.3% lower than it was a year ago, helping to boost profits per diluted share somewhat.
Is this the reason investors are buying Avis stock today? Perhaps. But the valuation and the growth rate may be bigger factors. Priced just shy of $98 per share, and with analysts forecasting less than $7 per share in profit this year, Avis stock costs a low-seeming 14 times current year earnings — yet analysts polled by Yahoo! Finance see earnings surging 75% next year, to more than $12 a share.
If they’re right about that, Avis stock arguably costs as little as 8 times forward earnings. For a stock growing earnings at 75%, that probably seems pretty cheap.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.