Avis (CAR) Looks Impressive: Will it Keep Momentum Alive?

Avis Budget Group, Inc. CAR has been riding on its impressive expansion strategy, solid earnings and sustained productivity growth.

The company’s expansion strategy has been in full swing via alliances, acquisitions and joint ventures. Some of the recent ventures to expand globally include its acquisition of Italy’s leading car rental company – Maggiore and the introduction of its 12th rental station in Singapore, Asia, among others. Also, Avis recently fortified its fleet with the addition of Maserati’s Ghibli at select locations.

Further, the company has been focused on taking its Budget brand forward, thus elevating its multi-brand strategy to the next level. In this context, Avis recently bought the Budget Car Rental licensee for southern Africa in a deal with Barloworld, prior to which it had purchased the Budget licensee for Southern California and Las Vegas.

In our opinion, these strategies, along with better customer support systems, will boost the company’s top line.

Alongside, we believe that the company’s fundamental drivers, such as sustained productivity growth and improved pricing resulting in better margins, volume growth and potential revenue-generating synergies from the Avis Europe acquisition, bode well. This is evident from Avis’ fourth-quarter 2014 results, wherein the company delivered better-than-expected earnings and revenues, coupled with solid margins, eventually ending 2014 and embracing 2015 on a solid note.

However, Avis, which competes with Hertz Global Holdings, Inc. HTZ, United Rentals, Inc. URI and Rent-A-Center, Inc. RCII, has significant presence in international markets. This exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits. Consequently, the company expects its 2015 results to be adversely impacted by the ongoing negative currency movements.

Also, a major portion of Avis’ domestic car rental reservations come through third-party distribution channels. Hence, any disruption and termination of relationships, or reduction in transaction volume with such channels may have an adverse impact on the company’s financial condition as well as its operational results.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research