Please ensure Javascript is enabled for purposes of website accessibility

Avis Rises 11% as Second Quarter Is Both Abysmal and Impressive

By Daniel Miller – Jul 29, 2020 at 9:33AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Top- and bottom-line results plunged, but cash burn checked in well ahead of estimates.

What happened

Shares of Avis Budget Group (CAR -0.50%), a vehicle rental company, jumped more than 11% higher early Wednesday, despite dismal operating results during COVID-19, as the company's actions to reduce its fleet size and costs could set the stage for positive adjusted EBITDA for the remainder of 2020.

So what

Avis' second quarter is really a mixed bag that contains equal parts dismal and impressive results. COVID-19 obviously shattered the company's business as travel and transportation slowed to a near standstill during the second quarter. Revenue dropped 67.5% to $760 million compared to the prior year and adjusted earnings per share checked in with a $5.60 loss. While those figures are abysmal, the top and bottom lines actually beat Wall Street estimates.

Rental desk sign at airport

Image source: Getty Images.

What's also important for investors to recognize is the company's ability to adjust and cut costs. Management is targeting to save over $2.5 billion on an annualized basis and has sequentially improved its adjusted EBITDA results every single month since COVID-19 hit, actually reaching positive adjusted EBITDA in the Americas segment during June. Management originally estimated its second-quarter cash burn would be a significant $900 million chunk of its $1.5 billion liquidity, but the actual cash burn checked in at $580 million thanks to the company downsizing its fleet and other cost removal initiatives.

Now what

Investors have reason to be optimistic despite the dismal financial figures from Avis' second quarter. Management deserves a lot of credit for its ability to raise liquidity while significantly reducing cash burn. Let's not forget that Avis was able to take steps to stabilize its business at a time when Hertz Global Holdings (HTZG.Q) was forced to file for bankruptcy protection. While what happens with Hertz is yet to be determined, it's generally believed that Avis will stand to benefit from the development once travel and transportation returns to some realm of normalcy.

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
CAR
$138.25 (-0.50%) $0.70
Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
HTZG.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.