Business Change for the Better

Stocks: Avis shift in focus is paying off

By: NewYorkBusiness.com
Published: February 20, 2007 - 8:55 am

Avis Budget Group Inc.'s decision to shed its real estate and travel units and focus exclusively on its car rental business is paying off.

Shares of the Parsippany, N.J., company, formerly known as Cendant, have soared nearly 50% in value, closing at $27.29 on Friday. Investors' faith has been restored by a management that has focused its attentions on its core business, instead of also selling houses and booking hotel rooms. This stock has plenty of gas left.

The shares trade at a multiple of 23 times this year's expected earnings, significantly less than the shares of rival Hertz, which fetch a hefty 30 times projected income. Profit margins, which got hammered in 2006, are poised to perk up this year as Avis executives show signs of finally getting customers to pay more for their rentals. If the company can just push its margins up to industry averages, earnings could double by next year.

Investors will get their first good look at how an independent Avis is performing when it reports fourth-quarter and full-year earnings today. Analysts surveyed by Reuters Estimates forecast 2006 operating income of about $98 million, or 97 cents a share, on revenue of $5.7 billion.

This year, they are forecasting that profit will jump 23%. But the critical issue will be profit margins.

Encouraged by bullish statements from management, analysts expect margins to widen to 8% next year. If Avis can get to that level, earnings could reach $211 million, or $2.06 a share, on revenues of $6.5 billion.

Stocks to watch

Sirius Satellite Radio Inc. will be on investors' minds this week after Monday's announcement that the satellite radio broadcaster had inked a $13 billion merger agreement with rival XM Satellite Radio. The deal, which includes $1.6 billion of debt, will face close scrutiny by the Federal Communications Commission. Sirius' stock , which ended last week up 1.9%, rose 13.2% to $4.29 in premarket trading Tuesday.

Talk about fearless investing! Last week, Take-Two Interactive Software Inc.'s founder became the first executive to plead guilty in the options backdating scandal. Now he's working with authorities to ferret out other fraudsters. Last month, the maker of hyper-violent videos said it faced delisting over its inability to file required regulatory statements. So what's happened to the shares? They shot up another 5% to $20.22 last week and are up 14% in the last month.

Branded as little more than a charity case in an op-ed in The Wall Street Journal on Thursday, The New York Times Co. managed to remind investors that it isn't on the dole yet. The publisher's shares got a nice bounce after the Times unveiled a pact to combine its job listings with those of Web titan Monster Worldwide. Buoyed by good news on other recent e-ventures, the shares have gained nearly 20% in the last six months. Last week, the stock closed up 3.3% at $26.07.

Robert Greifeld, Nasdaq Stock Market Inc.'s chief executive, said last week that ultimately he "chose not to win" the battle for the London Stock Exchange. Investors, unhappy with that call, pummeled the market's shares into a 13% dive. Mr. Greifeld's only consolation may have been that the stock of archrival NYSE Group also had a lousy week, falling nearly 5% to $32.32. Maybe the rub is not so much a lack of merger partners as a surfeit of competitors.

New York Business