Avis Stock Has Attractive Valuation, Positive Catalysts

| About: Avis Budget (CAR)

Summary

Avis' valuation is attractive.

The car rental sector hasn't been significantly hurt by Uber and Lyft.

CAR stock has a couple of meaningful potential catalysts.

Avis (NASDAQ:CAR) is a good stock for value investors, but it also has a couple of powerful potential positive catalysts.

Even after rising recently, Avis' valuation has still dropped 18% over the last year, mostly due to worries about competition from Uber and Lyft. Avis' stock is currently trading at a rather attractive valuation of 10.5 times analysts' consensus 2016 earnings per share estimate.

Meanwhile, data suggests that Uber is not derailing the U.S. car rental market, as many had feared. According to Auto Rental News, the revenue of the major U.S. car rental companies actually rose to $237.1 billion last year, up from $26 billion in 2014. And Avis' U.S. car rental revenue increased to $5.445 billion in 2015 from $5.4 billion in 2014.

Moreover, on June 6 Avis CFO David Wyshner said that year-over-year car rental pricing trends had improved in the Americas each month from February to May, and looked to be rising again in June. Additionally, car rental prices actually rose in the Americas versus the same month in 2015, Wyshner pointed out.

In yet another sign that the car rental sector is doing better than the skeptics believe, famed billionaire investor Carl Icahn on June 7 announced that he had raised his stake in car rental company Hertz (NYSE:HTZ)to 15.24% from 14.34% in December 2015. Icahn, who can pay for some great advice and insights from experts, clearly believes that the car rental sector is doing pretty well.

A couple of other positive catalysts could give Avis a boost going forward. On June 30, Hertz announced that it had made a deal to supply rental cars to Uber and Lyft drivers. According to The Wall Street Journal, the deal could enable Hertz to "unlock more revenue from its portfolio of older vehicles." After Hertz made the deal with Uber and Lyft, Avis could easily make a similar deal with the ride sharing companies in the future. It's difficult to estimate the amount of revenue and profit that such a deal could generate for Avis, But given the rapid growth of Uber and Lyft and the fact that the transaction could boost the utilization of Avis older vehicles, it sounds like Avis' results could improve meaningfully in the wake of a deal with the ride sharing companies.

Meanwhile, on the macro economic front, contrary to the forecast of many on the Street in recent weeks, oil is heading down again, and U.S. job growth is accelerating. Both should be positive catalysts for the car rental sector in general and Avis in particular.

Judging by the numbers, Uber and Lyft apparently haven't significantly damaged the car rental sector, and Avis could benefit by signing a deal with the ride sharing companies. Avis' valuation is very attractive at current levels, and Icahn's increased investment in Hertz, along with positive macro economic trends, are also positive signals for Avis' stock.

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

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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