Digital Rental And Latin America Urbanization Will Shape Shared Mobility

Key Takeaways

• Accelerated digital service rollout, data-driven fleet shifts, and increased brand awareness position the company for industry-leading growth and superior profitability.
  
• Sustained pricing power, ongoing margin expansion, and unrivaled scale support long-term market share gains and regional consolidation leadership.
  
• Rising competition from shared mobility, regulatory changes, and economic risks in Brazil threaten Localiza's traditional car rental model, margins, and future growth prospects.

Catalysts

Engages in car and fleet rental business in Brazil and internationally.

• Analyst consensus expects the Seminovos division to deliver improved sales volumes and revenue growth, but robust July sales and a dramatic 19.5% drop in average kilometers of cars sold-along with a leap in brand awareness from 40% to 70%-suggest that both sales velocity and average selling prices could surpass even bullish estimates, driving a structural uplift in both topline and gross margin.
  
• While consensus views ongoing price adjustments in rental divisions as margin preservation, Localiza's ability to sequentially raise rates even in softer quarters, coupled with further cost reduction initiatives and deepening fleet integration synergies, indicates that upward re-pricing and margin expansion could sustainably outperform, significantly boosting both EBITDA and net margin beyond market expectations.
  
• The ongoing societal shift in Latin America toward mobility over ownership, combined with Localiza's accelerated rollout of digital-first rental and subscription services such as full digital pickup and best-in-class subscription features, positions the company to capture a disproportionate share of new urban users and drive market-shaping revenue growth well ahead of GDP or industry averages.
  
• Localiza's data-driven capital allocation away from heavy and severe-use fleets toward high-ROIC light vehicles and subscription products not only raises immediate profitability, but unlocks multi-year double-digit revenue and ROIC expansion as corporate fleet users in Latin America rapidly shift from ownership to strategic fleet outsourcing.
  
• Unmatched scale, technology integration, and long-term OEM partnerships uniquely position Localiza to lead regional industry consolidation; as mobility services penetration accelerates and mid-term M&A opportunities arise, Localiza could enhance market share and realize significant operating leverage, magnifying earnings power and intensifying the disconnect with current stock valuation.

Localiza Rent a Car Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Localiza Rent a Car compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Localiza Rent a Car's revenue will grow by 16.1% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.9% today to 11.6% in 3 years time.
• The bullish analysts expect earnings to reach R$7.2 billion (and earnings per share of R$6.81) by about August 2028, up from R$2.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.8x on those 2028 earnings, up from 15.6x today. This future PE is greater than the current PE for the BR Transportation industry at 9.0x.
• Analysts expect the number of shares outstanding to decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 24.04%, as per the Simply Wall St company report.

Localiza Rent a Car Future Earnings Per Share Growth

Risks

• The ongoing rise of urbanization and expansion of shared mobility models such as ride-hailing and car-sharing services threatens to structurally reduce demand for traditional car rentals, which could constrain Localiza's long-term revenue growth despite recent positive pricing and utilization trends.
  
• Accelerating environmental regulations and the transition toward electric vehicles require costly and continuous fleet renewal, and if Localiza is unable to efficiently manage this shift, it could face margin compression and higher capital expenditures that undermine net margins over time.
  
• Localiza remains heavily concentrated in the Brazilian market, so any macroeconomic or political instability in Brazil could lead to heightened volatility in earnings and disrupt revenue growth.
  
• Fleet financing costs and interest rates remain elevated, and if Localiza cannot further pass on these costs to customers through price increases, future net margins may be squeezed, especially as competition intensifies and cost efficiency improvements mature.
  
• The entrance of automakers into direct mobility services and subscription models could shrink Localiza's addressable market, eroding its market share and limiting future revenue and profit opportunities as consumer preferences shift away from traditional car rentals.

Valuation

• The assumed bullish price target for Localiza Rent a Car is R$65.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Localiza Rent a Car's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$65.0, and the most bearish reporting a price target of just R$39.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be R$61.9 billion, earnings will come to R$7.2 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 24.0%.
  
• Given the current share price of R$34.4, the bullish analyst price target of R$65.0 is 47.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.