Why Shares of Avis Budget Group Are Hitting the Gas Pedal Today

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  ) are coasting higher as much as 4.2% following announcements about the expansion of its stock buyback program and its upcoming earnings release.

So what: Avis Budget Group will report its fiscal-first-quarter earnings after the market close on May 7, followed by a conference call the next morning.

In a second press release, the company reported expansion of its stock repurchase program from a $200 million maximum to a $300 million maximum. There was just $65 million left under the previous program that began in August 2013.

CEO Ronald L. Nelson put into words what is normally obvious with buyback announcements: "The increase in our share repurchase authorization reflects the continued confidence we have in our business and our prospects."

Now what: Forecasts are one thing, but when a company puts its money where its mouth is, that action often speaks louder than words about its confidence. The timing of the announcement is particularly interesting since it came at the same time as the announcement about the earnings release date. It almost screams for attention, which is not something you'd expect if Avis Budget Group had a disappointing earnings release ahead.

Look for Avis Budget Group to at least meet, if not beat, the analyst estimate of $0.09 per share. More importantly, though, will be the outlook, since the first quarter is the industry's seasonally weakest quarter.

Based on estimates, Avis Budget Group trades at a forward P/E of between 19 and 20 based upon its current share price. Its estimated earnings per share are $2.72 for the end of the fiscal year in December 2014, about 24% greater than 2013's. It may look a little pricey at that level, but if the increased buybacks prove that management's confidence is appropriately placed, then look for analysts to raise these estimates throughout the year.

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Comments from our Foolish Readers

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  • Report this Comment On April 17, 2014, at 2:14 PM, dbtuner wrote:

    Apple does the same thing and you get all over them.

    Doesn't an increased buyback announcement with earnings mean they expect to miss and therefore buy lower?

  • Report this Comment On April 17, 2014, at 2:39 PM, nickeyfriedman wrote:

    @ dbtuner,

    In my observation a company with bad earnings will wait until the actual earnings day itself, instead of the mere scheduling, to announce the buyback to cushion the blow then.

    A company that announces the buyback ahead of earnings tends to be looking for more attention on itself on earnings day.

    Note it's just a tendency. Anything is still possible.

  • Report this Comment On April 21, 2014, at 6:56 PM, BearHutchBull wrote:

    CAR is over valued over played.

    The Hedge Funds are pumping and dumping as you can see nice trades at the end of each day..

    Leaving the show.. Buy Backs 50% of the time are showing weakness to pump the stock up before the inevitable dooms day..

    This is way way over done. My opinion of course.

    UBER and others have entered the market and UBER is the one car show in town that will remake

    rentals cars, taxi and zip alone...

    The Avis Old School may be schooled.

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