Why Avis Budget Shares Zoomed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of car rental company Avis Budget Group (Nasdaq: CAR  ) surged 20% today after its profit forecast for 2012 easily topped Wall Street estimates.

So what: While Avis expects to post a first-quarter loss on one-time charges, a much better than expected full-year outlook is forcing investors to up their valuation estimates. Management sees solid revenue growth of 24%-29% on improving demand and expects North American fleet costs to fall on a per-unit basis in 2012, triggering plenty of optimism about its profitability going forward.

Now what: For the full year, management sees adjusted EPS of $2.35-$2.65 on revenue of $7.3 billion-$7.6 billion, versus Wall Street's view of just $1.72 and $7.42 billion. "Travel demand across the majority of our markets remains healthy," Chairman and CEO Ronald Nelson noted, "and our integration of Avis Europe is progressing as expected." But while today's news certainly bodes well for the stock in the short term, Avis' ultra-volatile stock price, hefty debt load, and paltry returns on capital continue to make it a questionable long-term pick.

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