Why Is Avis Budget (CAR) Down 19% Since Its Last Earnings Report?

It has been about a month since the last earnings report for Avis Budget Group, Inc. (NASDAQ:CAR) . Shares have lost about 19% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CAR due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

First-Quarter Results

Avis Budget Group, Inc. (CAR) reported better-than-expected first-quarter 2018 financial results. Adjusted loss was 74 cents per share compared with a loss of 94 cents in the year-ago quarter. The figure was narrower than the Zacks Consensus Estimate of a loss of $1.04.

Total revenues of $1,968 million beat the Zacks Consensus Estimate of $1,954 million. The figure was up 7% year over year. The top line benefited from higher demand, strong pricing in the Americas segment and favorable foreign currency movement of 3% coupled with increased efficiency in business. All the segments posted solid performance in the reported quarter.

Revenues by Segment

Americas segment revenues increased 3% year over year to $1,348 million. Segment revenues were positively impacted by 3% higher volume growth. It accounted for 68.5% of total revenues. International segment revenues increased 18% year over year to $620 million. Segment revenues were positively impacted by 9% higher volume growth and $61 million (12%) benefit from foreign currency. However, this was partially offset by 2% lower local currency revenue per day.It contributed 31.5% of total revenues.

Operating Results

Adjusted EBITDA in first-quarter 2018 came in at $2 million against a loss of $27 million in the prior-year quarter. Notably, adjusted EBITDA improved on the back of strong revenue growth and reduced per-unit fleet costs (on local currency basis).

Adjusted EBITDA for Americas was $15 million in first-quarter 2018 against a loss of $20 million in the year-ago quarter. Revenue growth along with 4% lower per-unit fleet costs and 120 basis points improvement in utilization drove the segment’s adjusted EBITDA figure. Adjusted EBITDA for International declined to $3 million in the reported quarter from $7 million in the year-ago quarter. The decrease was due to lower pricing, higher expenses related to investments for marketing purposes and raised airport concession fees. Total operating expenses increased to $2,097 million from $2,004 million in the year-ago quarter.

Balance Sheet and Cash Flow

Avis Budget exited first-quarter 2018 with cash and cash equivalents of $544 million compared with $923 million in the year-ago quarter. As of Mar 31, 2018, long-term debt was $3,607 million compared with $3,599 million at the end of 2017. The company generated $503 million of cash from operating activities in the reported quarter compared with $447 million in the year-ago quarter.

2018 Outlook

Avis Budget reaffirmed its guidance for 2018.The company expects revenues to be in the range of $9.200-$9.450 billion. The Zacks Consensus Estimate stands at $9.30 billion, well within the guided range. Current year earnings per share are expected to be between $2.90 and $3.75. The Zacks Consensus Estimate of $3.33 falls within the guided range. Further, the companyexpects adjusted free cash flow between $325 million and $375 million. Adjusted EBITDA is anticipated in the range of $740-$820 million. Adjusted net income is expected in the range of $240-$310 million. Adjusted pretax income is expected in the range of $330-$410 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.

Avis Budget Group, Inc. Price and Consensus

VGM Scores

At this time, CAR has an average Growth Score of C, however its Momentum is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for momentum and to a lesser degree growth.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise CAR has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.