On Tuesday, Susquehanna maintained a Neutral rating on Avis Budget Group (NASDAQ:CAR) but reduced the stock's price target significantly to $145 from the previous $195. This adjustment follows Avis Budget's stock experiencing its largest single-day drop since March 2020, plunging approximately 23% compared to the airline index's average decline of around 3% and the S&P 500's fall of about 1%.
The decline in Avis Budget's stock was attributed to the company's full-year 2024 Depreciation per Unit (DPU) guidance, which was net around $325, with gross and net depreciation expected to align more closely. This announcement coincided with January's Consumer Price Index (CPI) data, which indicated a month-over-month increase of about 0.3% and a year-over-year rise of roughly 3.1%. Notably, used car prices saw a decline of approximately 3.4% month-over-month and 3.5% year-over-year.
The analyst noted that with the second half of 2024's travel demand still uncertain—airline schedules for the latter part of the year are yet to be finalized and there's limited visibility for booking volumes more than 90 days out—there are concerns about the potential for lower residual values of rental cars.
In light of these factors, Susquehanna expressed a view that there are more favorable risk/reward opportunities in global network carriers such as Delta Air Lines (NYSE:DAL) and United Airlines, as well as cruise line operators Royal Caribbean (NYSE:RCL) and Carnival (NYSE:CCL) Corporation. The firm's stance reflects the broader challenges facing the travel industry, particularly in forecasting demand and asset values in a fluctuating market.
InvestingPro Insights
Following the recent plunge in Avis Budget Group's stock, InvestingPro data reveals additional insights that could be crucial for investors. The company's market capitalization has adjusted to approximately $4.7 billion USD, with a notably low earnings multiple, as the P/E ratio stands at 3.04. This low valuation could indicate that the stock is undervalued, especially when considering the adjusted P/E ratio for the last twelve months as of Q4 2023, which is even lower at 2.85.
Despite the concerns over travel demand and car residual values, Avis Budget's gross profit margin remains robust at 38.3%, and its operating income margin is healthy at 24.73%. These margins suggest that the company has maintained a strong operational performance. However, it's important to note that the company's stock has experienced significant volatility, as highlighted by the one-week price total return of -21.99% and the six-month price total return of -41.05%. This volatility is echoed in the InvestingPro Tips, which indicate that the stock is trading near its 52-week low and has taken a big hit over the last six months.
For investors seeking a more comprehensive analysis, there are 15 additional InvestingPro Tips available for Avis Budget Group, which could provide deeper insights into the stock's performance and outlook. For those interested in accessing these tips, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which could be a valuable resource in these uncertain times for the travel industry.
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