Is Avis Budget Group a Buy After Its Latest Earnings Report?

With the exception of a brief pop during a meme-stock craze, Avis Budget Group (Nasdaq: CAR) has had a relatively quiet year.

The company faces a challenging competitive landscape as ridesharing continues to proliferate, and autonomous vehicles like Waymo threaten to render traditional car rentals obsolete, creating an overhang in the industry.

In its second quarter, revenue fell 1% to $3 billion, short of estimates of $3.11 billion.

Despite the slide in revenue and the double-digit after-hours decline in the stock following the results, the company made progress in some areas. Vehicle utilization rose 1.9 points from the quarter a year ago to 72.6% and 2.5 points in the Americas to 73.2%, record second-quarter highs for the company. It also lowered per-unit fleet costs by 4% to $290 per month, both of which show the business becoming more efficient, a key strategic goal for Avis.

The company also kicked off an autonomous vehicle partnership with Waymo, completing thousands of trips in its first month, helping ensure it will remain relevant in the age of AVs.

Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 3% to $286 million, and the cutback in expenses, including vehicle depreciation and restructuring expenses, led to generally accepted accounting principles (GAAP) earnings per share jumping from $0.10 to $0.98.

While that was a strong improvement, it still missed analyst estimates at $1.91.

Management acknowledged that booking trends weakened in the quarter, and the company trimmed its fleet accordingly.

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What it means for investors

Avis stock tumbled 13% after hours on the earnings miss, but investors seem to be missing the bigger picture here. A weak macroeconomic climate was the reason for the underwhelming results, as a sluggish travel market may be due to inflation, but travel demand is outside of the company’s control.

However, Avis is executing effectively in the areas under its control, lifting vehicle utilization rates to records for the second quarter, lowering per-unit costs, and driving a surge on the bottom line. Still, investors seemed disappointed by a decline of more than 3 million available rental days, reflecting a shrinking fleet. Revenue per vehicle was flat, and it did not offer any guidance, leaving investors in the dark.

Is Avis a buy?

CEO Brian Choi took over in early 2025, promising to focus on the bottom line rather than chasing growth, and that shift has paid off: the company has significantly reduced vehicle depreciation costs from a year ago, cutting its GAAP loss in half in the first half of the year.

Avis is also outperforming rival Hertz on the balance sheet and in operational efficiency, a clear win.

Avis looks like it’s on the right track, but it’s too soon in its turnaround to call the stock to buy. I’d like to see some stabilization in the rental market and continued margin improvement. Analysts expect earnings per share of $3.41 this year and $7.82 the following year.

If it can hit those numbers and continue to deliver margin improvement, the stock should move higher, but I’d like to see its progress over the next two quarters first.

Jeremy Bowman 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.