Zacks_Analysts' Blog : Avis Budget's Risk-Reward Balances - Analyst Blog

Currently, we are  maintaining a long-term 'Neutral' recommendation on Avis Budget Group, Inc. (CAR) with a target price of $18.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock.

Headquartered in New Jersey, Avis Budget Group is the leading general-use vehicle rental company in North America, Australia and New Zealand. Moreover, a formidable network of more than 7,800 rental locations and 350,000 vehicles enable the company to strengthen its well-established position in a highly competitive vehicle rental industry.

Furthermore, Avis Budget has recently launched its own sales force in the European region as a means to own and leverage the local opportunities and customers to drive inbound business. The company believes that the new sales force in the European region will add $30 - $50 million to the total revenue in fiscal 2011.

In an effort to control costs and boost profitability, Avis Budget has undertaken Performance Excellence initiative and five-point cost-reduction and efficiency improvement plan. The company expects its cost-saving initiatives to provide an incremental $50 – $60 million year-over-year savings in 2011. Besides, the total annual savings from the company's actions are expected to exceed $560 – $570 million in fiscal 2011.

However, Avis Budget heavily relies on its centralized information system, including reservation system, rental and sales transactions, managing fleet of vehicles, etc. The company's performance may be hurt by a major disruption in communication or centralized information network.

Approximately 47% of Avis Budget's domestic car rental reservations came through third-party distribution channels. Consequently, 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.

Above all, the company faces intense competition from other established players, such as Hertz Global Holdings Inc. (HTZ), Dollar Thrifty Automotive Group Inc. (DTG) and Ryder System Inc. (R). Consequently, the company may face challenges to maintain the same level of operating performance.