Avis Budget Group, Inc.’s CAR top line is gaining from the surge in demand for the North American car rental industry. The company tackles supply-chain disruption by acquiring vehicles at favorable prices and adjusting its fleet size swiftly per demand. Shareholder-friendly policies are added advantages.

Meanwhile, rising fleet costs weigh on the company’s bottom line. Avis Budget Group struggles to boost profitability and scalability due to heightened competition within the car rental industry.

CAR reported dismal fourth-quarter 2024 results. It incurred a loss of 23 cents per share, narrower than the Zacks Consensus Estimate for a loss of 96 cents and falling from an EPS of $7.1 in the year-ago quarter. Total revenues of $2.7 billion missed the consensus estimate by a slight margin and declined 2% year over year.

How is Avis Budget Group Faring?

The North American car rental industry has been experiencing strong demand, driven by changes in consumer behavior, including an inclination toward short-term vehicle access rather than owning the car permanently.

The company’s strong market share positions it to capitalize on these trends. As global travel reverts from the pandemic blues, CAR improves from increased demand for car rentals, both for leisure and business travel.

Avis Budget Group's management of its fleet, including acquiring vehicles at favorable prices and quickly adjusting its fleet size based on demand, has enabled it to mitigate the effects of supply-chain disruptions, particularly those involving vehicle shortages. We expect this improved fleet utilization and cost control to boost CAR’s bottom line and enable the company to maintain margins despite inflationary pressures.

In 2024, 2023, 2022 and 2021, the company bought back shares worth $70 million, $951 million, $3.33 billion and $1.46 billion, respectively. Such moves underline the company’s confidence in business and help boost investors’ confidence in the stock by positively impacting the bottom line.

Meanwhile, expenses have surged due to high fleet costs in the past two years due to difficulty in navigating within the risk vehicle and user car market. In 2024, 21% of the total expenses were incurred from fleet costs. The fact that total expenses increased 42.8% from the preceding year indicates a massive surge in fleet costs. We also expect it to increase 4.3% year over year in the first quarter of 2025. Hence, the bottom line is likely to remain under pressure going forward.

Avis Budget Group, Inc. Total Expenses (TTM)

CAR faces fierce competition within the vehicle rental industry, which affects its profitability and scalability. Competition is marked by intense price and service competition involving global, local and regional competitors. Key competitive factors include pricing, customer service quality (including booking system usability and rental processes), vehicle availability and reliability, rental locations, product innovation, and distribution networks on a national and international scale.

Zacks Rank & Stocks to Consider

CAR has a Zacks Rank #3 (Hold) at present.

Some better-ranked stocks in the broader Zacks Transportation sector are Southwest Airlines Co. LUV and Ryanair RYAAY.

Southwest Airlines carries a Zacks Rank of 2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

LUV has a long-term earnings growth expectation of 21.9%. It delivered a trailing four-quarter earnings surprise of 58.6% on average.

Ryanair currently has a Zacks Rank of 2.

RYAAY has a long-term earnings growth expectation of 7.3%. It delivered a trailing four-quarter earnings surprise of 44.5% on average.

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Ryanair Holdings PLC (RYAAY) : Free Stock Analysis Report

Southwest Airlines Co. (LUV) : Free Stock Analysis Report

Avis Budget Group, Inc. (CAR) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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