Earnings Preview: Avis Budget on a Roll

Avis Budget Group CAR is scheduled to report third-quarter 2011 results Wednesday, November 2, after the closing bell. Investors will be looking for a repeat of the second-quarter results, when the car and truck rental specialist said revenues rose for the fourth consecutive quarter and per-share earnings easily trumped analysts' estimates. This time, the consensus forecast calls for Avis to report earnings of $0.98 per share, which would be an increase of 20.4% from the same quarter of last year. But that EPS estimate has slipped from $1.00 per share 60 days ago. Note though that Avis's EPS results have not fallen short of estimates in the past ten quarters. Analysts also expect the company to post revenues of $1.6 billion, or a 5.6% increase from a year ago. Looking ahead to the current quarter, which will include the holiday travel season, analysts so far are looking for 12.1% year-over-year growth in revenues. And the forecast for the full year thus far calls for revenues up 7.8%, with per-share earnings that are double what they were a year ago. The Company Parsippany, N.J.-based Avis Budget Group provides car and truck rentals and related services to businesses and consumers. The company supplies rental cars to the premium commercial and leisure segments of the travel industry under the Avis brand name, and to the value-conscious portion of the industry under the Budget brand name. Its rental fleet includes approximately 345,000 vehicles. The company was founded in 1946 and has a market cap of $1.5 billion. During the three months that ended in September, the company dropped its bid to acquire competitor Dollar Thrifty DTG after more than a year. Avis also continued its integration of Avis Europe, which it acquired this summer. Performance The company has a long-term earnings per share growth forecast of 28.0% and its return of equity is 33.0%. The P/E ratio is in line with the industry average but the PEG ratio is 0.5. A number of insiders bought shares in early October. All six of six analysts who follow the stock consider it a Buy or Strong Buy, and they have a mean price target of $25.00 per share, which gives the stock plenty of room to run from the current price near $14. The share price has surged more than 45% in the past month from the neighborhood of its 52-week low. But shares are still trading about 27% lower than the 52-week high of $19.49 per share. The share price is above the 50-day moving average and approaching the 200-day moving average. Over the past six months, the stock has narrowly outperformed Hertz Global Holdings HTZ its rival for the acquisition of Dollar Thrifty, but underperformed Dollar Thrifty itself. Action Items: Bullish: Investors interested in exchange traded funds invested in Avis Budget Group might want to consider the following trades:

• SPDR S&P Transportation XTN is more than 17% higher than a month ago.
• PowerShares Dynamic Retail PMR is more than 13% higher than a month ago.
• PowerShares Dynamic Industrials PRN is more than 17% higher than a month ago.

Bearish: Traders may want to consider this alternative position:

• Zipcar ZIP is more than 13% higher than a month ago.

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