On Tuesday, Goldman Sachs adjusted its outlook on Avis Budget Group (NASDAQ:CAR), reducing the price target to $118 from $164, while maintaining a Sell rating on the stock. The adjustment followed a significant 23% drop in the company's shares on Monday, after Avis Budget's earnings call revealed concerning financial forecasts for the year ahead.
The company's earnings call disclosed two critical issues that contributed to the downward revision. Firstly, Avis Budget projected a higher-than-anticipated vehicle depreciation cost for 2024, estimated at approximately $325 per vehicle. This figure surpasses the previous consensus of around $300. The increase is attributed to the company's excessive fleet size and a continued decline in used car prices.
Secondly, the company anticipates year-over-year declines in pricing for 2024 that are more severe than the market had anticipated. Goldman Sachs now expects a 4% decrease in pricing for the year. These challenges are expected to be particularly pronounced in the first quarter, as Avis Budget may need to sell some vehicles at a loss due to over-fleeting.
As a result of these updates, Goldman Sachs has significantly lowered its first-quarter EBITDA projection for Avis Budget to $36 million, down from the previous estimate of $213 million. The firm has also decreased its EBITDA forecasts for 2024 and 2025 by 15% each. In light of these financial pressures, it is expected that Avis Budget will halt its stock buyback program for at least the first half of the year.
The new price target of $118 represents a 9% downside from the previous target of $164, reflecting the firm's cautious stance on the stock's near-term prospects.
InvestingPro Insights
Amidst the recent challenges faced by Avis Budget Group (NASDAQ:CAR), investors are closely monitoring the company's performance. According to InvestingPro data, Avis Budget Group currently has a market capitalization of $4.52 billion and is trading at a low earnings multiple, with a P/E ratio of just 2.93, which is even lower than the last twelve months' adjusted P/E ratio of 2.74. This suggests that the stock may be undervalued relative to its earnings.
Despite the company's stock price taking a significant hit, with a one-week total return of -21.99% and a one-month total return of -19.13%, an InvestingPro Tip highlights the stock as trading near its 52-week low, potentially indicating a buying opportunity for value investors. Additionally, another InvestingPro Tip points out that the stock's RSI suggests it is in oversold territory, which could mean that the stock is due for a rebound.
For those considering Avis Budget Group as an investment, there are more InvestingPro Tips available that could provide deeper insights. With a total of 15 additional tips listed on InvestingPro, investors can gain a more comprehensive understanding of the stock's potential. To explore these tips and make informed decisions, visit https://www.investing.com/pro/CAR and don't forget to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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