Time to Sell Avis

Avis Budget Group (CAR) is up 16.5 times since the beginning of the year, and more if your starting point is the March 9 low. Of course the stock first collapsed before partially recovering. On August 7, 2007 Goldman Sachs rated CAR a buy at $23.26 a share. Back then CAR was enjoying robust pricing and volume growth. The stock had fallen 30% from early July to early August. That fall in the stock price was due to concerns about competition and fear that CAR would have to cut prices. But the second quarter of 2007 showed the pricing concerns were unfounded and CAR’s cost control plans were impressive. That triggered Goldman’s buy rating. Unfortunately CAR’s stock price did not recover. It continued falling, finishing 2007 down 50% from Goldman’s buy point. But analysts did not give up. In early 2008 management announced a $50 million share buy back program.

On March 7, 2008 Value Line wrote, “This unranked stock’s appreciation potential to 2011-2013 is well above Value Line’s median, assuming, as we do, a partial rebound in the P/E ratio by that period.” In 2007 CAR generated $16.58 a share in cash flow. That was impressive and more than needed to service CAR’s substantial debts. As we now know the economic fundamentals changed suddenly and dashed all hopes for CAR’s profits and stock price.