Shares of Avis Budget Group Inc. (CAR) gained nearly 4.2% yesterday following the company’s declaration of an increase in its share repurchase program. The latest buyback reflects the company’s sound financial position and favorable prospects.
The company, on Oct 15, revealed that its board of directors has increased the outstanding amount of its share repurchase authorization to $375 million from the current outstanding amount of $175 million. The $175 million remaining authorization was part of the company’s $300 million share buyback program authorized in April this year.
Of late, this major vehicle rental company has stopped dividend payments and share repurchase programs due to a downfall in its business. However, in Aug 2013, Avis Budget initiated a share buyback program of worth $200 million based on the growth initiatives, which have improved its financial position.
Starting from that period until the end of third-quarter 2014, the company repurchased over $260 million worth of its common stock. Avis Budget’s move of increasing the share repurchase authorization reflects its commitment toward enhancing long-term value for shareholders. It also depicts the company’s ability to boost earnings and cash flows in the long run.
Avis Budget’s strong balance sheet along with its cash flow generation ability provides it with the financial flexibility to undertake shareholder-friendly moves. The company generated operating cash flow of $1,011 million in the first-half of 2014 and had cash and cash equivalents $437 million at second-quarter end.
Share repurchase programs are frequent among companies with a stable cash position and healthy cash flow. Other companies that recently announced new share repurchase authorizations include Brown-Forman Corp. (BF.B), Investment Technology Group Inc. (ITG), and Vanguard Natural Resources, LLC (VNR).
We believe that share repurchases not only enhance shareholder return but raise the market value of the stock as well. Looking ahead, Avis Budget remains confident of its growth potential, thereby raising hopes for a further increase in shareholder value through dividend payouts and share buybacks.
Currently, Avis Budget carries a Zacks Rank #3 (Hold).
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