Avis Budget Group's (CAR) Massive Buyback Program May Represent Peak Earnings - Morgan Stanley
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Morgan Stanley analyst Billy Kovanis reiterated an Equalweight rating and $85.00 price target on Avis Budget Group (NASDAQ: CAR) noting that the company is expecting record earnings in 2021, but investors remain hesitant on the durability of earnings growth beyond 2021. This requires management to reinvest peak profits to set the company up for LT growth going forward which could help to unlock the Bull Case.
The analyst stated "The good news is that Avis can deploy its excess free cash flow generated in this environment. We have seen the company make moves already, but in the form of buybacks. In the 2Q-2021 10Q, Avis disclosed that from July 12, 2021 through August 3, 2021, the company repurchased ~4.1 million shares of common stock at a cost of ~$318 million. Further, in August 2021, the board approved an additional $1bn of buyback increases. In our model we now expect $650mm of buybacks in 2H-2021, leading to a decline in share count by ~8mm (11% of shares
outstanding). The bad news is that buybacks could be a sign of peak earnings..."
Shares of Avis Budget Group closed at $74.95 yesterday.
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