Why Avis Budget Group Dropped 10% After Solid Progress

What happened

Shares of Avis Budget Group (NASDAQ:CAR), a provider of mobility solutions and rental services through its Avis and Budget brands, opened higher before declining 10% Wednesday morning after the company announced fourth-quarter financial results.

So what

On an adjusted basis, Avis posted a $0.36-per-share loss in the fourth quarter, which was well ahead of analysts’ expectation of an adjusted loss of $0.64 per share. The top line continued to feel pain from the COVID-19 pandemic with revenue down 37% to $1.36 billion. On the bright side, Avis managed to post a second consecutive quarter of positive adjusted EBITDA, $74 million in the fourth quarter, thanks to $500 million in cost reductions — which totaled more than $2.5 billion in 2020. “The fact that the Americas achieved its best fourth quarter Adjusted EBITDA margin on the lowest fourth quarter revenue base in our Company’s history serves as a proof point that our focus on cost savings will continue to deliver results,” said CEO Joe Ferraro in a press release.

Car rental sign

Image source: Getty Images.

Now what

Part of the driving force behind the company’s 10% decline Wednesday could be that its stock had nearly recovered to prepandemic levels, and business not being close to those levels could be giving investors reason to take a breather.

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CAR Chart

CAR data by YCharts

The truth is simple: Nobody knows if or when travel will return to prepandemic levels. That’s out of Avis management’s hands, but it’s clear that with cost reductions, removing roughly 250,000 vehicles from its global fleet, and $1.3 billion liquidity at year’s end, the company is positioned to drive through 2021 safely. While that may not sound like an exciting investment thesis to many in the automotive industry, it certainly seems preferable to the fate that awaits competitor Hertz, which is trudging through the bankruptcy process.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/02/17/why-avis-budget-group-dropped-10-after-solid-progr/

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