JPMorgan cuts Avis Budget target to $240 on softer 4Q results

On Wednesday, JPMorgan adjusted its outlook on Avis Budget Group (NASDAQ: NASDAQ:), reducing the company’s price target from $280.00 to $240.00. Despite the change, the firm maintained its Overweight rating on the car rental company’s shares. The revision follows Avis Budget’s fourth-quarter earnings, which fell short of expectations, prompting a significant sell-off in the stock.

After the market closed on Monday, Avis Budget Group reported fourth-quarter EBITDA of $311M, which was $20M less than the Bloomberg consensus of $331M. This outcome led to a sharp 22.9% decline in Avis Budget’s share price, compared to a 1.4% decrease in the . Analysts attribute the sell-off to a combination of the company’s historically high beta, broader market concerns about persistent interest rates, and the impact these factors could have on used vehicle prices and vehicle interest expenses.

The lack of detailed guidance from Avis Budget, coupled with indicators pointing to lower-than-consensus 2024 EBITDA, has also influenced JPMorgan’s reassessment. The firm has reduced its 2024 EBITDA estimate for Avis Budget to $1,415 million from $1,625 million, noting that management expects depreciation per unit to reach as high as $325 for the full year.

JPMorgan anticipates a roughly $700M difference between Corporate Adjusted EBITDA and managerial free cash flow in 2024. This projection takes into account corporate interest expenses, capital expenditures, cash taxes, and net fleet capital expenditures. Consequently, the firm now expects Avis Budget’s free cash flow to be closer to $0.7B, rather than the $0.9B previously modeled. This adjustment has also led to a moderated estimate for the company’s 2024 buyback, now set at $450M, down from $600M, with the majority expected in the latter half of the year.

The reassessment by JPMorgan comes after Avis Budget indicated that the first quarter of 2024 is likely to see a peak in depreciation due to higher-than-normal vehicle dispositions and industry over-fleeting. The de-fleeting action is expected to support pricing in the medium term, although the near-term trend now appears to be more challenging than initially expected.

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