Shares in Avis Budget Group (CAR) jumped more than 10% in Tuesday’s extended market trading in the US after the rental car company topped sales estimates in the second quarter.
The stock soared to $30.40 in after-market trading. Avis posted a loss of $481 million, or $6.91 a share, in the second quarter, versus a profit of $62 million, or 81 cents a share year-on-year. On an adjusted basis Avis lost $388 million, or $5.60 a share, in the quarter, with analysts expecting a loss of $5.68 a share. Total revenues dropped 67% to $760 million, beating analysts’ estimates of $719 million.
“We quickly [identified] the impact that COVID-19 would have on our business, taking immediate actions to shrink our fleet to match demand, executing a debt financing transaction to build additional liquidity, cutting over $1 billion in expenses across our business,” said Avis CEO Joe Ferraro. “We believe our quick and targeted action has positioned us to both navigate the pandemic and capitalize on consumer demand as it returns.”
Avis added that the quarter ended with an adjusted EBITDA loss of $28 million for June, driven by positive adjusted EBITDA of $3 million generated from the Americas. Moreover, liquidity stood around $1.5 billion as of the end of the second quarter. Cash burn during the reported quarter was $580 million down from an estimated $900 million “due to continued vigilance around expense control and stronger than anticipated vehicle fleet disposals”.
Looking beyond the reported quarter, Avis said that revenue improvement has been more robust in the rental company’s off-airport locations and is close to pre-pandemic levels. However, the company said that it expects the rate of improvement to moderate in the third quarter but anticipates utilization will continue to improve as it matches car fleet with demand.
“Since the beginning of April, we have seen consistent sequential week-over-week increases in rental volume, with both the Americas and International having their best volume to date last week due to increased leisure activity,” said Ferraro. “Coupled with the significant reduction of vehicles as we right size our fleet to current demand, we anticipate both positive cash flow and Adjusted EBITDA for the remainder of 2020.”
Barclays analyst Brian Johnson yesterday raised the stock’s price target to $24 (13% downside potential) from $18, but maintained a Hold rating, saying that he is “incrementally bearish” in his travel outlook adding that a slower-than-expected travel recovery leads him to lower sales estimates.
Overall, Wall Street analysts are sidelined on the stock. The Hold consensus shows 3 Holds, 1 Sell, and 2 Buys. With shares down 14% so far this year, the $28 average price target now indicates a modest 1.5% downside potential in the coming year. (See Avis stock analysis on TipRanks).
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