Buy Avis Budget stock for a 60% return in 12 months: Deutsche Bank

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Written on May 31, 2023

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Deutsche Bank upgraded Avis Budget to "buy" on Wednesday.
Analyst Chris Woronka said its shares are significantly undervalued.
Avis Budget stock is down over 30% versus its YTD high at writing.

Avis Budget Group Inc (NASDAQ: CAR) down more than 30% versus its year-to-date high is an opportunity for investors interested in quality stocks on sale, as per a Deutsche Bank analyst.

Avis Budget stock has upside to $263

On Wednesday, Chris Woronka upgraded the car rental company to “buy” and raised his price objective to $263 that suggests about a 60% upside from here.

The analyst is bullish on Avis Budget stock primarily as it’s trading at a steep discount. His research note reads:

It’s no secret that CAR’s earnings have benefitted from gains on resale of its vehicles or its pricing metric remains 36% ahead of 2019 levels. But we believe too much pessimism is baked into stock on both accounts.

The stock market news arrives about a month after Avis Budget reported earnings for its fiscal first quarter that topped Street estimates by a massive margin.

Avis Budget could resume stock buyback

Woronka is particularly constructive on the European business of the Nasdaq-listed firm. That segment, he expects, will beat expectations as post-pandemic recovery continues to unravel in the region.

He’s also convinced that the owner of Zipcar will resume share buybacks in the second half of 2023 which will serve as another tailwind for the Avis Budget stock.

CAR has underperformed comparable travel and leisure sub-sectors on a YTD basis. Its forward EV/EBITDA multiple is nearly four turns lower than peers and 1.5 turns below its long-term historical average.

According to Statista, the car rental market will expand at a compound annual growth rate (CAGR) of nearly 3.5% between 2023 and 2027.