Digital Mobility And Global Travel Will Unlock Premium Market Growth

Key Takeaways

• Premium service and advanced fleet management strategies are expected to drive margin expansion, revenue growth, and lasting efficiency improvements.
  
• Strategic moves in autonomous mobility, digital infrastructure, and flexible rental models position the company for sustained relevance and steadier long-term earnings.
  
• Reliance on cyclical travel, rising competition, slow EV adoption, and high capital needs threaten margins, growth prospects, and long-term shareholder value.

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.

• Analyst consensus expects the new premium Avis First offering to moderately uplift margins and revenues, but the company is architecting this as a category-defining, airline-style segmentation that could shift a double-digit share of rental days toward premium RPD, substantially raising both average daily revenue and net margins as customers pay more for experience.
  
• While analysts broadly expect normalization of fleet costs through new vehicle purchases and improved utilization, management signals that its advanced technology-driven mega-fleet management and disciplined OEM negotiations can create durable structural efficiencies, potentially enabling recurring margin outperformance beyond normalization.
  
• The company's early leadership in autonomous mobility partnerships, notably with Waymo, positions it to access a future market far larger than traditional car rental, tapping into an expanding opportunity set around vehicle-miles-traveled and large-scale fleet operations, which could drive a step-change in long-term revenue and extend its relevance in a secularly growing mobility ecosystem.
  
• By leveraging its global network and deep investments in digital infrastructure and charging capabilities, Avis can both serve the surge in global travel and seamlessly integrate with multi-modal mobility apps, capturing higher cross-platform demand and contributing to sustained revenue and customer retention growth.
  
• As lifestyles shift further toward asset-light, flexible transportation, Avis's capabilities in subscription, long-term rental, and car-sharing models-combined with its large addressable market and technology investments-mean it could command higher market share and smoother recurring revenues, translating into stronger, less cyclical earnings for years to come.

Avis Budget Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Avis Budget Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Avis Budget Group's revenue will grow by 1.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -19.1% today to 7.6% in 3 years time.
• The bullish analysts expect earnings to reach $935.0 million (and earnings per share of $27.2) by about September 2028, up from $-2.2 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 10.6x on those 2028 earnings, up from -2.5x today. This future PE is lower than the current PE for the US Transportation industry at 24.6x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Avis Budget Group Future Earnings Per Share Growth

Risks

• The company's heavy dependence on the cyclical travel and airport sector makes it acutely vulnerable to macroeconomic downturns or secular declines in business travel, which would put consistent pressure on revenue and net earnings.
  
• Growing competition from ride-hailing services and technology-driven mobility entrants, combined with the risk of downward pricing pressure and market fragmentation, threatens the company's ability to defend margins and could erode revenue growth over the long term.
  
• The slow pace of electric vehicle fleet adoption, along with the risk of regulatory penalties and possible need for a costly legacy fleet overhaul, exposes Avis to higher capital expenditures and shrinking customer segments, impacting net margins and creating a drag on shareholder returns.
  
• The rising popularity of sustainable transportation alternatives and evolving consumer preferences away from traditional car rentals may force the company to accelerate costly investments or risk ongoing erosion of market share, negatively affecting top-line growth.
  
• High leverage and the need for ongoing major capital outlays to maintain, modernize, and electrify the fleet, as well as upgrade technology infrastructure, could constrain free cash flow and limit the company's ability to sustain or increase earnings and shareholder value.

Valuation

• The assumed bullish price target for Avis Budget Group is $200.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Avis Budget Group'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 $200.0, and the most bearish reporting a price target of just $105.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $12.3 billion, earnings will come to $935.0 million, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 12.3%.
• Given the current share price of $157.91, the bullish analyst price target of $200.0 is 21.0% 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.