Avis Budget Group (NASDAQ:CAR) shares are trading lower after BofA Securities analyst Federico Merendi downgraded the stock from Buy to Underperform and cut its price target from $120 to $113.
Babcock argued industry fundamentals and the macro backdrop do not justify the stock’s June outperformance.
The analyst said the U.S. rental car industry faces pricing and demand pressures that will weigh on Avis Budget’s earnings in the second half of 2025 and into 2026.
CAR shares are sliding. See the full breakdown here.
Also Read: Avis Budget Group Stock Skids After Q2 Earnings Miss
Bank of America’s survey data shows fewer consumers expect to spend more on travel over the next three months compared to last year, pointing to a softer pricing environment. While TSA data suggests a slight improvement, he sees few near-term catalysts and noted tariffs could further weaken demand.
Babcock acknowledged Avis Budget’s growth initiatives, such as its premium-focused Avis First program and a fleet management partnership with Waymo. He described these as positive long-term moves but stressed they are unlikely to boost near-term earnings.
The analyst also flagged vehicle depreciation (DPU) as an uncertain factor. While stronger residual values could reduce depreciation costs and aid earnings, he believes any benefit will likely be marginal compared with the COVID-era environment.
Babcock revised his EBITDA estimates to $0.9 billion for 2025 and $1.03 billion for 2026, down from prior forecasts of $0.95 billion and $1.2 billion. He cut his price target from $120 to $113, valuing the stock at 7.5 times 2026 EV/EBITDA, and said the earnings environment has stabilized enough to no longer rely on normalized multiples.
The analyst expects 2025 sales of $8.09 billion and EPS of $9.43.
CAR Price Action: Avis Budget Group stock is down 4.83% at $149.06 at publication on Wednesday.
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