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On Tuesday, BofA Securities initiated coverage of the following: avis budget Group, Inc. (NASDAQ:) has a Buy rating and a $170.00 price target. The new price target suggests the rental car company's stock could rise more than 55%.
The move comes as the stock has experienced a steep decline, down 39% since the beginning of the year, compared to a 7% rise in the same period.
Analysts at BofA Securities highlighted that Avis Budget Group's earnings have stabilized since the fourth quarter of 2023 and expect the company's earnings recovery to be stronger compared to its peers. This optimism is rooted in expectations that Avis will benefit from favorable trends in travel spending, more stable pricing, and the company's continued efficiency efforts.
When determining the target price, BofA Securities applied an enterprise value to EBITDA (EV/EBITDA) multiple of 9 times the company's expected 2025 earnings. The company's approach reflects the normalization of earnings and cash flow due to the elevated levels seen during the pandemic. While car rental company valuations are typically close to pre-COVID-19 levels, with EV/EBITDA multiples of 6x to 8x, Avis Budget Group believes industry fundamentals are healthier. Therefore, it is evaluated at a higher standard.
Additionally, analysts cited Avis Budget Group's more stable performance compared to its competitors to justify the company's premium valuation. This consistency is a contributing factor to the analysts' positive outlook on the stock and their decision to set a price target that suggests a significant upside from current levels.
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