Goldman Sees 18% Downside To Avis Budget Group, Downgrades to Sell

Rental car operator Avis Budget Group Inc. CAR is likely to face headwinds from a growing off-lease vehicle supply, continued on-airport competition and rising interest rates, according to Goldman Sachs. 

The Analyst

Goldman analyst David Tamberrino downgraded shares of Avis Budget from Neutral to Sell and lowered the six-month price target from $37 to $33. 

The Thesis

The headwinds facing Avis Budget are likely to weigh on 2018 results, Tamberrino said in a Wednesday note. (See the analyst's track record here.)

Car rental companies benefited in the second half of 2017, as hurricane recovery efforts helped tighten fleets from increased rental car demand and improved residual values as damaged vehicles were replaced. 

The analyst said he expects corporate EBITDA growth to be more subdued than consensus estimates, with Goldman's 2018 EBITDA estimate for Avis Budget 30 percent below the Factset consensus.

"Overall, we believe sustained competition from industry market share leader Enterprise (which has continued to take share) as well as increasing availability of ride-share competition on-airport, in combination with rising interest rates and a reversion in residual value trends will keep rental car earnings more flat year-over-year in 2018 and below Street expectations," Tamberrino said. 

The Price Action

Avis Budget shares were up about 7 percent over the past year until Tuesday.

Reacting to the downgrade, the shares were slumping more than 6 percent percent to $37.71 in pre-market trading.

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