Avis Budget (CAR, Financial) is expected to benefit from the strong demand for its care rental services in North America this year. It is seeing relatively higher volume and great pricing trends in North America. Also, Avis is executing various growth initiatives such as integrated demand fleet pricing system, everyday incremental synergies and acquiring licensees across the world. It is additionally seeing great growth momentum in Europe. These positive trends along with growth initiatives should assist the company to put up a better show for fiscal 2014.
Licensee acquisitions to unlock great opportunities ahead
Avis Budget is strategically acquiring new licensees. The company has recently acquired potential licensees across the world, including Payless and Zipcar acquisitions. Also, it has made it clear that it would be acquiring one of the largest budget licensee holding rights to all of Southern California and Las Vegas. Avis has been targeting these assets for a long time now. This opportunity should assist the company availing access to one of the largest airports in North America and Southern California.
Avis also expect this transaction to unlock incremental truck-in acquisitions opportunity in the future. It should also benefit from its sub-licensees, particularly SoCal sub-licensees that will be part of this transaction. Avis expects this acquisition to drive its growth ahead and help the company to return significant value to its shareholders over the time.
Increased prices and good volume to continue its growth momentum
In addition, the company should gain from the increased prices for most of its brands for both on and off airport in both of its segments such as leisure and commercial rentals. Avis remains on track to achieve further price growth across its sales channels, customer segments and car classes. Also, the company is effectively rolling out yield management system across its sub-licensee and licensees that should assist the company to control growing fleet costs. The company expects these initiatives to improve its bottom line performance going forward.
Avis is additionally seeing great demand environment on and off airport. This growing demand is increasing its volume in both leisure and commercial rental classes. It is particularly experience strong volume for off airport. It has increased general use of car rentals in off-airport markets and growing its reservation activity towards higher margin proprietary websites. The company expects its volume to remain healthy in the future with growing consumer trend towards mobility. Avis volume had grown 6% in North America with commercial and leisure rental up 5% and 6% respectively in the last reported quarter.
Expansion of brands
Apart from these positive trends, the company remains focused to invest in the brand marketing and digital platform. It has recently invested nearly $5 million in brand marketing. It is additionally increasing its investment into its digital platform. Avis is expanding its Zipcar brand. It is expanding its Zipcar brand to additional new markets with added services to its members. It is opening its Zipcar brand in Madrid and Paris. In fact, the company started pooling of cars between Zipcar and Avis Budget at over 80 locations and plans to expand its pooling activities to more than 150 locations this year.
Additionally, Avis has rolled over innovative program that focuses on world’s most frequent travelers. It has more than 45,000 most frequent travelers of Southwest Airlines flight crews. It is also adding Zipcar to hotel and airports. It has additionally started signing up new Zipcar members to its network that should provide more flexibility to its members across the world and enhance its profitability going forward. Also, Avis continues to see increased growth for Zipcar in usage, revenue and pricing as well as increase in the overall membership. Its membership has grown more than 9,000,000 worldwide.
Avis is really excited about this new service to its customers across the world. It has signed an agreement with GSA to serve government employees in Washington, New York, Boston and Chicago. Also, it is leveraging its existing budget relationships by signing additional corporate accounts to Zipcar to serve their mobility needs. It has added approximately 21 additional universities in four new markets in Dallas.
Conclusion
Avis is certainly a good pick as the company is strategically expanding its presence across the world. It is also benefiting from increased prices and growing volumes that should accelerate its performance this year. The analyst expects its earnings to grow at CAGR of 29.45%, higher-than-average industry CAGR of 14.70% for the next five years. This highlights tremendous growth prospects attached with the stock. Also, it offers attractive short term return with earnings growth of 32.305 this year and 26.50% for next year respectively.
Moreover, the stock is very cheap with the trailing P/E of 33.09 and forward P/E of just 16.35 that shares incredible growth for the stock in the future. Also, it has PEG ratio of just 0.71 that continues to support its growth over the coming years.
