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BofA optimistic on Avis Budget stock amid recovery

EditorEmilio Ghigini
Published 03/19/2024, 07:32 AM
© Reuters

On Tuesday, BofA Securities initiated coverage on Avis Budget Group, Inc. (NASDAQ:CAR) with a Buy rating, setting a price target of $170.00. The new price objective suggests a potential upside of over 55% for the car rental company's stock.

The initiation comes as the stock has experienced a significant decline, dropping 39% year-to-date, contrasting with a 7% gain in the S&P 500 over the same period.

The analyst from BofA Securities highlighted that Avis Budget Group's earnings have stabilized after the fourth quarter of 2023 and anticipates a stronger earnings recovery for the company compared to its peers. This optimism is rooted in the expectation that Avis will benefit from favorable trends in travel spending, more stable pricing, and the company's ongoing efficiency efforts.

In determining the price target, BofA Securities applied an enterprise value to EBITDA (EV/EBITDA) multiple of 9x to the company's estimated 2025 earnings. The firm's approach reflects a normalization of earnings and cash flow from the elevated levels seen during the pandemic. While rental car companies are generally being valued at an EV/EBITDA multiple closer to pre-COVID levels, which range between 6x and 8x, Avis Budget Group is being valued at the higher end due to the healthier fundamentals of the industry.

Furthermore, the analyst justified the premium valuation for Avis Budget Group by citing its more consistent operating performance relative to its competitors. This consistency is a contributing factor to the analyst's positive outlook on the stock and the decision to set a price target that implies a significant increase from current levels.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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