New Customer App And PGA Partnership Will Strengthen Customer Loyalty In 2025

Key Takeaways

• Optimizing fleet management strategies and leveraging data analytics are expected to enhance profitability and revenue growth.
  
• Strategic marketing initiatives and improved customer experience aim to boost brand appeal and customer retention, potentially increasing future earnings.
  
• Inefficient fleet management and macroeconomic uncertainties could jeopardize net margins and earnings stability due to increased operational costs and demand fluctuations.

Catalysts

Provides car and truck rentals, car sharing, and ancillary products and services to businesses and consumers in the Americas, Europe, the Middle East and Africa, Asia, and Australasia.

• Avis Budget Group's accelerated fleet rotation strategy, by refreshing the fleet with new vehicles purchased at lower prices, is expected to normalize fleet costs, increase vehicle utilization, and reduce maintenance expenses, which will likely improve net margins in 2025 and beyond.
  
• The focus on leveraging data analytics and enhanced residual value modeling for fleet negotiations should further optimize vehicle costs and improve adjusted EBITDA moving forward.
  
• Operational efficiencies gained from new in-life fleet technologies to enhance vehicle utilization and customer experience can contribute positively to both revenue and net margins.
  
• The anticipated robust travel demand throughout 2025, especially during peak periods like summer, coupled with disciplined fleet size management aligned with demand, is expected to drive revenue growth.
  
• The investment in a new customer app to enhance user experience, along with marketing initiatives such as the partnership with PGA champion Xander Schauffele, is expected to improve brand attractiveness and customer loyalty, thereby potentially increasing earnings.

Avis Budget Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Avis Budget Group's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from -15.4% today to 3.3% in 3 years time.
• Analysts expect earnings to reach $403.4 million (and earnings per share of $7.02) by about March 2028, up from $-1.8 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $563.2 million in earnings, and the most bearish expecting $243.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.8x on those 2028 earnings, up from -1.1x today. This future PE is lower than the current PE for the US Transportation industry at 25.8x.
• Analysts expect the number of shares outstanding to decline by 1.51% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Avis Budget Group Future Earnings Per Share Growth

Risks

• The significant $2.5 billion noncash asset impairment and other related charges due to fleet strategy changes could signal vulnerabilities in managing fleet costs effectively, potentially impacting net margins.
  
• The necessity to accelerate fleet rotation at a loss suggests potential inefficiencies in previous fleet management strategies, which could lead to further operational costs and affect earnings.
  
• Market demand fluctuations, such as the impact of calendar shifts (Easter moving to April), could influence revenue predictability and result in uneven quarterly earnings performance.
  
• The outlook for $1 billion in adjusted EBITDA assumes optimal fleet cost management and demand conditions which, if not met, can significantly impact net margins and future earnings.
  
• Macro-economic uncertainties, including potential tariffs on new vehicles, may affect vehicle costs and residual values, impacting net margin and overall earnings stability.

Valuation

• The analysts have a consensus price target of $113.5 for Avis Budget Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $138.0, and the most bearish reporting a price target of just $95.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.3 billion, earnings will come to $403.4 million, and it would be trading on a PE ratio of 12.8x, assuming you use a discount rate of 11.4%.
• Given the current share price of $58.01, the analyst price target of $113.5 is 48.9% 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.