Shareholders of Avis Budget Group, Inc. (NASDAQ:CAR) will be pleased this week, given that the stock price is up 16% to US$47.94 following its latest yearly results. It looks like a credible result overall – although revenues of US$9.2b were what analysts expected, Avis Budget Group surprised by delivering a (statutory) profit of US$3.98 per share, an impressive 60% above what analysts had forecast. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we gathered the latest post-earnings forecasts to see what analysts’ statutory forecasts suggest is in store for next year.
Taking into account the latest results, the most recent consensus for Avis Budget Group from six analysts is for revenues of US$9.52b in 2020, which is a reasonable 3.8% increase on its sales over the past 12 months. Statutory per-share earnings are expected to be US$4.02, roughly flat on the last 12 months. Yet prior to the latest earnings, analysts had been forecasting revenues of US$9.33b and earnings per share (EPS) of US$2.85 in 2020. There’s been a pretty noticeable increase in sentiment, with analysts upgrading revenues and making a considerable lift to earnings per share in particular
It will come as no surprise to learn that analysts have increased their price target for Avis Budget Group 29% to US$48.75 on the back of these upgrades. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. There are some variant perceptions on Avis Budget Group, with the most bullish analyst valuing it at US$60.00 and the most bearish at US$31.00 per share. As you can see, analysts are not all in agreement on the stock’s future, but the range of estimates is still reasonably narrow, which could suggest that the outcome is not totally unpredictable.
It can be useful to take a broader overview by seeing how analyst forecasts compare, both to the Avis Budget Group’s past performance and to peers in the same market. It’s clear from the latest estimates that Avis Budget Group’s rate of growth is expected to accelerate meaningfully, with forecast 3.8% revenue growth noticeably faster than its historical growth of 1.8%p.a. over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to grow their revenue at 6.0% per year. So it’s clear that despite the acceleration in growth, Avis Budget Group is expected to grow meaningfully slower than the market average.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Avis Budget Group’s earnings potential next year. Fortunately, analysts also upgraded their revenue estimates, although our data indicates sales are expected to perform worse than the wider market. There was also a nice increase in the price target, with analysts feeling that the intrinsic value of the business is improving.
Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Avis Budget Group going out to 2022, and you can see them free on our platform here..
You can also view our analysis of Avis Budget Group’s balance sheet, and whether we think Avis Budget Group is carrying too much debt, for free on our platform here.
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