Shares of Avis Budget Group Inc. (CAR) experienced a decline on Thursday after Chris Wronka, an analyst from Deutsche Bank, downgraded the car-rental company’s stock. Wronka stated that the stock has achieved in just two months what he expected would take a year.
Currently, CAR stock is 4.3% lower in midday trading, following a 1.5% loss on Wednesday. This drop comes after the stock reached a five-month high on Tuesday.
The stock has significantly soared by 46.7% since Wronka recommended investors start buying on May 30. The price climbed from $163.27 to $239.48 by Wednesday’s close. In comparison, the Dow Jones Transportation Average (DJT), which includes Avis Budget as a component, increased by 16.5% during the same period. The S&P 500 index (SPX) also saw an 8.6% gain.
In May, Wronka upgraded the stock primarily due to its valuation and the potential catalyst of share repurchases in the second half of the year. He adjusted the 12-month stock price target to $263 from $239 at that time. With the stock price currently near his target, Wronka sees limited prospects for multiple expansion and believes the risk/reward balance is reasonable.
Although Avis Budget’s stock may remain volatile leading up to the release of second-quarter earnings on July 31, Wronka believes that the potential upside is somewhat limited unless the company surprises investors with a significant number of share repurchases in the latest quarter.
Analysts project second-quarter earnings per share for Avis Budget to be $9.45, a decrease from $15.94 in the same period last year. Revenue is also expected to decline by 0.9% to $3.22 billion.
