Avis Budget Group, Inc. (CAR) recently declared that it has closed the purchase of its Budget Car Rental licensee for Southern California and Las Vegas.
The company sponsored the deal with the proceeds of a senior notes offering worth $175 million, bearing a rate of 5.50%. These notes, issued earlier this month, with a yield to maturity of 5.56%, are due in 2023.
Avis Budget had announced the acquisition plan of this licensee last month. This licensee directly functions at the Los Angeles International and Bob Hope Burbank airports, apart from many other locations all over the Los Angeles Metropolitan region. Additionally, it generates income from its sub-licensees operating all over Las Vegas and Southern California, where Budget Car Rental has been operating for nearly 56 years now.
The buyout is anticipated to generate synergies which will augment Avis Budget’s revenues by $100 million and its adjusted EBITDA by more than $25 million. Moreover, we believe that this strategic move will facilitate the company to enhance the Budget brand loyalty by utilizing the licensee’s established presence in a better way. This will ultimately boost its top line.
Being the largest North American Budget licensee, this property was being eyed by the company for long. Since Southern California is one of the biggest gateway markets for inbound North American travelers, Avis Budget is likely to enjoy substantial cost and revenue synergies, generate more profits and augment earnings by operating both its Avis and Budget brands in the region.
Budget Car Rental is a well-known car rental brand under which Avis Budget operates as an industry-leading vehicle rental service provider, targeting value-conscious travelers. The brand also operates a truck rental business in the United States, through a wide network.
Avis Budget Group is a leading vehicle rental company in North America, Australia and New Zealand. Moreover, a formidable network of over 10,000 rental locations in nearly 175 countries along with its acquisition of leading car-sharing network, Zipcar, enables the company to strengthen its well-established position in a highly competitive vehicle rental industry.
However, the company currently carries a Zacks Rank #4 (Sell), as it lowered the upper end of its projected adjusted EBITDA range for fiscal 2014, following its third-quarter results. Adjusted EBITDA is now expected to be in the range of $860–$885 million, representing a 12–15% increase year over year. The company had previously provided adjusted EBITDA guidance within $860–$910 million, up 12–18%.
Moreover, Avis Budget lowered its revenue projection for fiscal 2014 to $8.5 billion, implying 7% growth from the 2013 revenue level. Earlier, the company had projected revenues in the band of $8.6–$8.7 billion, representing 8–10% growth.
Better ranked stocks in the same sector include CoreLogic, Inc. (CLGX), with a Zacks Rank #1 (Strong Buy), Core-Mark Holding Company, Inc. (CORE) and WageWorks, Inc. (WAGE), each carrying a Zacks Rank #2 (Buy).
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