On the eve of full-year earnings reports from the public car rental companies, independent investment banking firm Avondale Partners LLC reported its analysis of earnings and the economy as it affects the rental car marketplace. The report stated that economic conditions are setting the stage for “robust” 2011 earnings given that macroeconomic drivers in the rental car business are collectively moving in a positive direction.
Avondale said 2011 GDP forecasts have been revised higher and consumer confidence is improving with more positive employment numbers. In addition, corporate travel budgets are growing, which means more business travelers who will need rental cars.
The report said improved fleet discipline brought about by the recession remains in place and that new highs for used vehicle prices has helped rental car company earnings through lower unit depreciation. Weather negatively affected Q4 and 2011 Q1 earnings due to reduced air travel. The report cited airlines losing millions of dollars due to flight cancellations, which will affect the rental car business due to the strong correlation between air travel and car rentals.
The analysis said consolidation would benefit the industry, and that speculation continues about whether the FTC will grant CAR antitrust clearance to acquire Dollar Thrifty Group under the terms CAR previously proposed. Avondale said consolidation would lead to further rationalization of industry fleet levels and improve pricing.
For Avis Budget Group, Inc., the report gave the company a Market Outperform rating and an $18 price target on CAR shares. Avondale expects normal seasonal weakness, combined with recent winter weather, combined to produce a Q4 loss for the company in 2010, but that the company’s fundamentals are still strong, which will mean significant earnings and growth in 2011. AvonDale’s Q4 revenue estimates are $1,215 million over $1,160 million in Q4 of 2009.
Avondale gave Hertz Global Holdings a Market Outperform rating and a price target of $17. The organization stated that in late January, Hertz indicated that strong Q4 2010 results would boost fiscal-year 2010 earnings beyond the top end of guided pretax and EPS ranges. The report also stated that the diversity of Hertz’s business, its above-average growth potential, and its focus on operational cost savings will take shares higher. AvonDale said Hertz’s Q4 2010 earnings would be $1,867 million over $1,741 in Q4 2009.
For the Dollar-Thrifty Group, Avondale maintained its Market Perform rating and its $47 price target as long as merger speculation continues. The organization stated that DTG’s reported earnings will be strong and that higher used-vehicle values, industry fleet discipline, and improving economic conditions contribute to this outlook. AvonDale reported earnings of $358 million for Q4 vs. $345 in Q4 of 2009.
To view the complete report, click on the link below.
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