BancBoston Robertson Stephens Raises Estimates for Avis and Hertz
12 November 1998
BancBoston Robertson Stephens Raises Estimates for Avis and Hertz
SAN FRANCISCO, Calif., Nov. 11 -- The following is being
issued by BancBoston Robertson Stephens, a member of the National Association
of Securities Dealers, CRD number 41271:
BancBoston Robertson Stephens senior automobile services analyst
Jordan Hymowitz today raised estimates for Avis and Hertz
rental cars.
Hymowitz is raising 1999 estimates for Avis from $2.00 to $2.10 and for
Hertz from $2.70 to $2.80. 1999 cash earnings (adding back goodwill
amortization) are estimated to be $2.47 for Avis and $3.05 for Hertz.
Hymowitz' target price for Avis rises from $27 to $32 and Hertz remains at
$52.
"We believe Budget's poor quarter has finally revealed differentiation in
the auto rental group," said Hymowitz. "Rental car profitability is dependent
upon the spread between rental rates and cost of vehicles (the single largest
cost). In 1999, we expect spreads to be near record levels. Although price
increases are likely to be up 3-4% (versus the 4-6% originally predicted), car
costs will be flat to down 1% for most major rental car companies (versus the
2% increase originally forecast). Hence, the net spread could be in the 4-5%
range, greater than the 3% range originally forecast."
In addition, Hymowitz believes that rental car company revenues do not
collapse in a recession. "Hertz has had one down year of domestic revenues in
the past 20 years," said Hymowitz. "In fact, Avis domestic revenues have
never declined in the past 20 years. Even if transactions and prices are flat
in 1999, EPS will rise for both Avis and Hertz to $1.90 and
$2.65, respectively, because of increased pass through concessions, lower debt
costs, and lower fleet costs. We believe Avis and Hertz will both exceed
Q4 1998 estimates of $0.07 and $0.35, respectively."
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