First, the company is by far the least sexy of the four former Cendant businesses: rental cars and trucks. And the co is a small cap. With a $1.8 billion market cap it is the smallest piece of the Cendant pie and the most likely to be sold indiscriminately. They did a 1 for 10 reverse after the breakup... so many folks ended up with 100 shares or less. Given 100 shares or less of a company you didn't originally intend to own, most people decide to sell rather than give it any more thought.
First, let's do the simple comparison: Dollar/Thrifty (NYSE:DTG) is selling at 67% of sales and Avis/Budget is selling at 31% of sales. The companies historically have been similar in terms of profitability -- for the first 6 months of 2005 Dollar/Thrifty had a pre-tax margin of 6.2% and Avis/Budget of 6%.
Since then CAR's margins have slipped and DTG's have risen. This is because Avis/Budget uses newer cars and has higher depreciation charges, but this is offset by higher rates and thus lower other expenses as a percentage of revenue. CAR also has about 20% more net debt than Dollar relative to revenue.
Besides the spin-off related issues, others are that fleet costs have gone up a lot due to the sorry state of the U.S. auto industry. This has naturally hurt Avis/Budget a lot more as they replace their fleet more often. At present, CAR's margins are depressed.
But rental car rates are on the rise, which will benefit CAR especially. At a 6% long-term pre-tax margin assumption, and $6 billion in revenue (2007 estimate), CAR is a double from the current price of $18.
And as with any spin-off, a degree of cost cutting can be expected, which could provide upside to the margin assumption.
Disclosure: Author is long CAR
CAR 1-yr chart: