Is Car Rental Company Avis Headed the IPO Route?

Includes: CAR, HTZ
by: Jonathan Liss

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

HEARD ON THE STREET: Is the New Avis Already Ripe for the Picking?

  • Summary: With auto rental company Avis Budget Group (NASDAQ:CAR) beginning to trade under its own ticker name last week (it previously traded as part of Cendant Group), investors are wondering in which direction the company may be headed. With Avis a stand-alone business, some debt investors are betting it may follow the road taken by rival Hertz (NYSE:HTZ), which was bought out late last year by private-equity investors who increased its debt and are preparing for a potential public offering. But Avis claims it isn't headed that way. Private-equity firms have been on a buying spree over the past year, often using cash from banks eager to lend to them to scoop up companies. Avis shares look inexpensive, the company doesn't carry much debt and the business generates steady cash flow - all traits buyout firms typically find appealing, adding to speculation a buyout may be pending. Morgan Stanley analysts said in a Sept. 5 report that Avis looks cheap at 15.5 times its projected 2006 earnings. They said Avis's stock has been depressed by expectations of a slowing economy and moderating travel demand, cost pressures and weak margins. They added that Avis has room to improve its margins and pinned a target of $26 to $27.50 to the stock. Morgan Stanley had positions in Avis's shares and debt as of July 31. In 4 p.m. composite trading on the New York Stock Exchange yesterday, shares were off 2.4%, to $18.25.
  • Comment on related stocks/ETFs: Read more on Cendant's various stock spinoffs. Also, Abbi Adest looks at Hertz's recent IPO filing.

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