Global automobile rental giant Avis Budget Group, Inc. (NYSE: CAR)
closed out FY 2019 on a high note recording annual revenues of $9.2 billion, the highest ever. With strong momentum headed into 2020, the shares were ready for the next leg up hitting multi-year highs of $52.98 on Feb. 18, 2020, on the bullish Q4 2019 earnings results. Unfortunately, the black swan triggered in the following days as coronavirus contagion rocked the markets. Shares collapsed by nearly (-80 percent) diving to a low of $6.35 in the following four weeks as whole economies shut down to contain the spread of COVID-19. The overdone nature of the selling can be compared to the S&P 500 (NYSEARCA: SPY)
which dropped around (-35 percent) at its lowest point. New shareholders that came in on the earnings report gap have suffered tremendous losses, but investors looking for a bargain recovery play may have tremendous opportunities for entry.
Avis Budget Group is the world’s largest vehicle rental company with operations in 30 countries and licenses to operate in an additional 150 countries, 11,000 locations and an average fleet of 660,000 vehicles generating 171 million daily rentals. Its revenue streams are split 70/30 between the Americas and International with 60/40 split between leisure and commercial customers. At airports, they have 64/36 split between on-airport and off-airport revenues. Based on this data alone, it’s no wonder shares collapsed as travel and leisure activity came to a screeching halt in March 2020 to contain the spread of COVID-19. If it were a company-specific stop, then that’s would be truly horrifying. However, the bar has been set uniformly low as nearly all companies, especially in the transportation, travel and leisure segment, have been hit.
Markets Looking Past COVID-19
Markets are already looking past the next two quarters as evidenced by the lack of (additional) selling pressure on companies cutting estimates and pulling forward guidance. During these times, investors have an opportunity to be selective in picking bargains during the waves of panic selling. Not only is Avis Budget Group the top player in the industry, they solidified their dominance as evidenced by the poor results reported by distant peer Hertz Global (NYSE: HTZ). As coronavirus containment and peaks materialize, economies will start to function again. Dominant industry leaders may further galvanize their lead as commerce resumes. However, markets are always forward-looking and the opportunity for bargains will be long gone as stability and transparency forms.
CAR Versus HTZ
With two major players in the automobile rental industry, CAR is trading at a bargain compared to HTZ. At $17.72 per share, CAR trades at a forward price/earnings (P/E) of just 5.83 with a price/sales ratio of 0.14. Unlike competitor HTZ, CAR is profitable generating $302 million in operating profits with 3.29 percent net margins compared to HTZ (-$58) million net losses for FY 2019. CAR demonstrated superior fleet management in 2019 as they unloaded 85 percent of vehicles by end of the third quarter enabling greater capitalization of residual values. This possible through alternate higher margin channel sales hitting another record of 73 percent and 83 percent though non-auction channels for November and December 2019. CAR is growing the direct-to-consumer channels on location and Ultimate Test Drive, online vehicle sales platform.
Opportunistic Buy Levels
Since CAR shares have rebounded over 300 percent off its lows of $6.35, its prudent not to chase entries. Using the rifle charts on wider time frames to lay out the playing field suitable for swing traders and investors. The weekly stochastic is still falling, but the daily has formed a stochastic mini pup up through the 20-band. Rather than chase, its best to await pullbacks while the weekly stochastic is still falling. The bargain level entries are at the $15.29 Fibonacci (fib) level followed by the $12.18 fib and daily market structure low (MSL) buy trigger level and the ultimate bargain area entry is the $10.25 weekly lower Bollinger Bands (BBs). Since the bounce off the lows has already happened, its best to watch for pullbacks to the opportunistic levels. There is a possibility that CAR will test the weekly 5-period MA at the $20.71 fib first before pulling back. Always make sure to game plan your trade well in advance. The next earnings report is due out April 29, 2020.