Dollar Thrifty, Avis Look Undervalued Compared To Their Peers

Includes: CAR, DTG, HTZ, R, UHAL
by: Insider Monkey

Dollar Thrifty Automotive Group (NYSE:DTG) operates in the U.S. and Canada. Through its Dollar and Thrifty brands, the company is primarily engaged in the business of the daily rental of vehicles to business and leisure customers through company-owned stores. It is a value stock mostly owned by value investors with a reputation for investing with a large margin of safety. Jim Simons had $86 million invested in DTG during the second quarter.

Executives at Avis Budget Group, Inc (NASDAQ:CAR) and Hertz Global Holdings, Inc. (NYSE:HTZ) were entangling in a bidding war to acquire DTG last year. But the proposed purchase prices climbed ever higher, quickly sapping any accretive possibilities for the winner, so it's perhaps best that no deal was made ultimately. We are going to take a closer look at Dollar Thrifty Automotive Group Inc., Hertz Global Holdings, Inc., Avis Budget Group, Inc., and two truck rental companies, Amerco (NASDAQ:UHAL) and Ryder System, Inc. (NYSE:R), to determine which stocks promise higher returns for investors.

DTG reported revenues of $395.1 million for the second quarter of 2011. Second quarter operating income rose 89% to $88.8 million. Its EPS is $3.95 during the past 12 months. DTG is expected to earn $4.7 in 2011 and $4.61 in 2012. The stock recently traded at $60.01. Its current P/E ratio is 15.31 and forward P/E ratio is 12.77.


DTG is expected to grow its earnings by 36% over the next 5 years. This implies that its PE ratio using its 2014 earnings is around 7.04. CAR is expected to grow by 28% over the next 5 years, and its PE ratio using its 2014 earnings is around 4.03. There aren’t growth estimates for HTZ and UHAL but their corresponding 2012 PE ratios are 8.24 and 6.96 respectively. Ryder’s expected growth rate is around 13% and its PE ratio using its 2014 earnings is around 9.04. DTG and UHAL look slightly undervalued compared to HTZ and R. CAR’s numbers do not reflect recent turmoil in the company, which might be caused by the deal the company is trying to make as mentioned before. That’s the reason the stock is trading at a significant discount. DTG also looks to be trading at a slight discount assuming its growth estimates are accurate.


Volatility is generally used as a measure of risk. DTG’s beta is 3.81, HTZ’s beta is 2.65, CAR’s beta is 5.52, UHAL’s beta is 0.99, and R’s beta is 1.8. DTG’s beta isn’t much different than its comparables in car rentals, and together they are higher than the market. UHAL and R have lower beta and closer to the market.

Hedge Fund Ownership:

Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on the average. HTZ was the most popular stock among hedge funds at the end of second quarter, with 37 hedge funds being bullish about it. DTG was the second most popular stock with 32 hedge funds (nearly 10% of the funds we track). Twenty hedge funds were bullish about CAR and there are eighteen for R. 10 hedge funds were bullish about UHAL. D.E Shaw was bullish about both HTZ and DTG.

Insider Purchases:

Stocks purchased by insiders tend to outperform the market on the average. HTZ had 3 insider purchases during the past 6 months. CAR had 14 insider purchases during the past 6 months. This may relate to the recent turmoil in the company, which made the stock trade at a significant discount. There are no insider purchases for DTG during the past 6 months.

Overall, our analysis points out that DTG is slightly undervalued compared to the other stocks in this group. Strong hedge fund interest for DTG also indicates some form of perceived value in this space. The stock outperformed the market significantly since the end of the second quarter as well. On the other hand, strong insider purchases in CAR may indicate that the stock is also undervalued. We like DTG and are intrigued by CAR. We urge investors to do an in-depth analysis of both stocks for their portfolios.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.