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Shares of Avis Budget Group Inc. surged Monday, after Deutsche Bank analyst Chris Woronka boosted his earning estimate and stock price target a day before the rental car company reveals second-quarter results, saying a “big beat” is likely.
The stock
CAR,
rallied 6.6% in afternoon trading toward a seven-week high. It is on track for an eighth gain over the past 10 sessions, and has run up 28% during that stretch.
The company is scheduled to report second-quarter earnings on Tuesday, after the closing bell. The FactSet consensus is for Avis to swing to earnings per share of $2.35 from a loss of $5.60 a year ago, while revenue is projected to rise 160% to $1.98 billion.
“The print is likely to show a U.S. RPD [revenue per day] metric that is far above what industry observers (ourselves included) would have thought possible as recently as early this year,” Deutsche’s Woronka wrote in a note to clients.
He raised is stock price target by 21%, to $91 from $75, while reiterating the hold rating he’s had on Avis since October 2019.
Based on “triangulation of admittedly limited data points,” Woronka believes RPD for the quarter could be up approximately 40% from the same period in 2019, before the pandemic, to his new estimate of $78.
“This would imply a sizable beat vs. sell-side consensus on both the top and bottom lines, but our sense is that a growing number of buy-side expectations are closer to the revised numbers we are publishing today,” Woronka wrote.
He nearly tripled his full-year 2021 EPS estimate, to $11.93 from $4.13, while lifting his revenue estimate by 14% to $8.55 billion from $7.50 billion.
Both his new estimates are well above the FactSet consensus, for 2021 EPS of $6.58 and revenue of $7.67 billion.
Investors should keep in mind that big earnings beats don’t always translate into stock price gains.
Avis has beaten consensus quarterly bottom-line estimates by sizable margins the past three quarters: loss per share of 46 cents reported vs. FactSet loss consensus of $1.99 in Q12021; loss of 36 cents per share vs. loss expectations of 64 cents in Q42021; and EPS of $1.13 vs. EPS consensus of 40 cents in Q32020.
Revenue also beat expectations for each of those quarters, but by a much narrower margin of an average of 5.3% above the FactSet consensus.
Meanwhile, the stock fell on the day after each of those reports were released, by an average of 7.0%.
Leading up to second-quarter results, the stock has slipped 1.7% over the past three months but had soared 136.2% year to date, while the S&P 500 index
SPX,
has gained 5.2% the past three months and advanced 17.2% this year.
Concerns over the stock’s potential reaction is one of the reasons Woronka doesn’t recommend buying the stock.
“We maintain our hold rating and believe volatility in the stock is likely to continue in the near term coming out of earnings,” Woronka wrote.
