AVIS BUDGET GROUP INC CAR S
April 06, 2021 - 11:46am EST by
sidhardt1105
2021 2022
Price: 76.00 EPS -.075 3.75
Shares Out. (in M): 70 P/E NA 20
Market Cap (in $M): 5,300 P/FCF 70 19
Net Debt (in $M): 3,500 EBIT 469 788
TEV ($): 8,800 TEV/EBIT 19 11
Borrow Cost: Available 0-15% cost

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Description

Recommend Shorting CAR
Initial Target Price $46.50 (>35% return)
 
Stock now at all-time high, $74
Valuation stretched on COVID reopening fueled short squeeze, hertz bk plan approval
Potential shenanigans related to Hertz bk plan approval
Business travel likely to remain weak in 2020
Long term secular risks threats from UBER, LYFT, and TSLA (ha!) ride sharing unlikely to disappear
 
Shorting Risk Management Discussion
Short Interest at 19% of the Float, high but not out of control
Prosaic business limits fantasy TAM risk to short
Current 10M ATM Share offering limits risk
1.44 P/C Ratio reasonable
GEX low at 27 bps of daily volume (9300 shares per 1% move) should allow stock to fall
 
Valuation Discussion
Adjusted Free Cash Flow in 2020 -$405m versus 2019 +277m 2018 +430m
 
Assuming Pre-COVID stock price range of $40-$50 was reasonable (although it traded much lower for the two-year
period prior), stock should be adjusted for:
 
-$680m in cash flow for 2020
-$400m in lower expected EBITDA for 2021 than was expected for 2021 in 2019
+ benefit from cost savings program, likely to be $200m-ish annually, +$1.3b at 6.5x EBITDA
=+220m in valuation or +$3/ per share = $43-53
 
Assuming CAR’s 38 year-old hedge fund manager CFO can keep costs down if activity ramps back up.
 
$5.2 billion market cap
$3.5 billion corporate net debt =
$8.7 billion Enterprise Value
11x 2022 Estimated EBITDA and 8.7x EBITDA guidance for when business returns to 2019 levels
Hertz & Avis used to trade around 6.5-7x EBITDA
 
At 6.75x EBITDA and $1 billion of EBITDA, Hertz would be a $46.50 stock
 
Bull Case Narratives and response
 
$2.5 billion in cost savings should result in rocket ship recovery
Cost savings are driven by highly variable model and will mostly reverse when activity returns
Company is targeting $1 billion in EBITDA at 2019 revenue levels (2019 EBITDA was $788m)
High Used Car prices lower costs in the business
Used car prices should eventually fall as plane and train travel become common again
Used car prices should eventually fall as new car availability improves
 
Other Bear Narratives
 
Hertz emergent from bankruptcy with less debt, may be a more effective competitor
 
Auto Semiconductor chip shortage may result in increased costs for Avis to grow re-fleet to meet reopening
demand.
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

At the Market equity offering

Decline in used car prices

Increase in new car prices

Disappointing return of business travel

Continued share gains by UBER, LYFT

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