CAR

Research · Sep 3, 2026

[CAR] Avis Budget Group Thesis 2026: Normalizing Fleet Costs Are the Whole Story for a Leveraged Rental Equity

Avis Budget Group, Inc. (NASDAQ: CAR) is a US-based global vehicle-rental and mobility company headquartered in Parsippany, New Jersey (Avis founded 1946; Budget 1958; the modern Avis Budget Group formed from the 2006 Cendant separation; Zipcar acquired 2013), that boomed in 2021-2023 (sky-high used-car prices → huge margins → one of the most aggressive buybacks in the market, collapsing the share count from ~80M+ to the mid-30s/low-40s) and then stressed in 2024-2025 (used-car prices normalized down, over-purchased-at-high-prices vehicles, EV residual losses → a large 2024 fleet impairment + a margin/earnings collapse + CEO turnover + a refocus on fleet normalization and deleveraging). CAR enters FY2026 with FY2025 revenue ~$11.4-12.6B (~flat YoY off ~$11.65B FY2024) and a deeply-negative-to-modestly-recovering adj. EPS (the thesis is recovery toward break-even-and-better as fleet costs normalize), reflecting ~$8-9B aggregate Americas (US + Canada + Latin America + the Caribbean — the largest segment) revenue plus ~$3-3.5B aggregate International (Europe — France, Germany, Italy, Spain, the UK — the Middle East, Africa, Asia, Australasia) revenue, all under a leadership team whose CEO seat turned over in the stress period (Joe Ferraro had a long Avis Budget career; a newer CEO was brought in for the fix-the-fleet phase; large shareholders — Carl Icahn, SRS Investment Management — have historically been involved). The first thesis pillar is the Vehicle Rental (Americas + International, Travel-Demand Cycle, Pricing/Utilization, Fleet/Depreciation Economics) pipeline (~$11-12B revenue, ~94-98% revenue mix): the brands — Avis (premium), Budget (value), Budget Truck (light truck rental), Zipcar (car-sharing), Payless (deep-value), plus regional/international brands — at airports (the bulk of revenue — leisure + commercial travelers) and off-airport (insurance-replacement, local rentals), across the Americas (~70-75% of revenue) and International (~25-30%), a business highly cyclical with travel demand (air-passenger volumes, leisure, business travel, international inbound; sensitive to a consumer/travel slowdown); the unit economics turn on volume/transaction days × revenue per day (RPD — pricing — which spiked in 2021-2022 on tight fleet supply, then normalized down as fleets refilled) × utilization (% of fleet on rent), minus per-unit fleet costs — the critical swing variable, where fleet costs = monthly depreciation per car + interest on the fleet debt − gains/losses on vehicle sales (in 2021-2022, sky-high used-car prices meant Avis Budget actually booked gains on car sales — negative net depreciation in some periods — and massive margins; in 2023-2025, used-car prices normalized down and the company had over-bought vehicles at high prices → a large 2024 fleet impairment writing down vehicle carrying values, plus higher per-unit depreciation going forward → the margins collapsed and losses followed); the EVs-in-fleet issue (the company bought a lot of EVs whose residual values fell sharply — a source of the impairment — and has been reducing EV exposure); and a 'good' adj. EBITDA margin of ~10-15%+ that the boom pushed well above and the 2024-2025 fleet stress pushed toward/below break-even, with the recovery thesis being back toward 'normal'; FY2026 catalyst is ~$11.5-12.5B revenue with volume/transaction days travel-demand-driven, RPD/pricing depending on industry discipline (Avis Budget + Hertz + Enterprise), utilization management, and — THE variable — per-unit fleet costs normalizing (slowing purchases, buying at better prices, managing residuals, reducing EVs, optimizing the fleet mix) → lower per-unit depreciation → the EBITDA recovery from the 2024-2025 trough back toward a 'normal' ~10-15%+ margin. The second pillar is the Fleet Management / Capital Structure (the Asset-Backed Fleet Debt, the Buyback-Driven Share Count, the 2024 Fleet Impairment, Deleveraging) pipeline: the fleet — ~600,000-700,000+ vehicles globally — billions of dollars of cars, financed largely with asset-backed securities (ABS — 'fleet debt,' secured by the vehicles, in SPVs, a more self-liquidating/secured risk profile than corporate debt) plus corporate debt (senior notes, term loans, the revolver) → a very large total debt load (~$25-32B+ total, mostly fleet ABS but several billion of corporate debt — the riskier part); corporate net leverage (the target ~2-3x corporate net debt/EBITDA) was pushed up sharply by the 2024-2025 EBITDA collapse, so deleveraging (or EBITDA recovery) is part of the thesis; the buyback history — post-COVID (2021-2023), one of the most aggressive buybacks in the market, collapsing the share count from ~80M+ to the mid-30s/low-40s (over half the shares bought back), enormously levering the per-share economics (great in the boom, brutal in the collapse); the 2024 fleet impairment (a large non-cash GAAP charge resetting vehicle carrying values, with higher future depreciation); the recovery mechanics — the equity story is normalize fleet costs (the operating fix) → EBITDA recovers → the corporate leverage ratio comes down → the tiny share count torques the recovered EBITDA into per-share value — against the downside that if travel weakens, used-car prices fall further, or pricing competition intensifies, the leveraged equity (behind a huge debt load) is at serious risk; no dividend (capital has gone to buybacks, the fleet and debt); and the activist/M&A backdrop (Icahn, SRS involved; a take-private at a depressed valuation is conceivable); FY2026 catalyst is fleet normalization continuing, the EBITDA recovery, the corporate leverage ratio coming down, fleet-ABS market access (refinancing the fleet debt at reasonable rates), the buyback-vs-deleveraging question, and the activist/M&A optionality. The capital story: no dividend, much-reduced buybacks (~$0-0.5B annual — down dramatically from the 2021-2023 frenzy; the deleveraging-vs-buyback debate), ~$25-32B+ total debt (mostly fleet ABS, plus several billion corporate), a highly variable corporate net debt/EBITDA (stretched in the 2024-2025 trough, the target ~2-3x), a B/B+/BB-ish non-investment-grade corporate credit profile (under pressure/downgrade-risk), ~30-40M diluted shares (tiny — down from ~80M+ pre-COVID) and highly volatile free cash flow (huge in boom years, negative in the fleet-stress year). At ~$60-160 per share (a very wide range — a high-volatility equity) on ~30-40M shares (~$2-6B equity, ~$27-38B EV — dominated by debt) CAR is best framed on a normalized EV/EBITDA (~3-6x on the corporate enterprise) and the corporate-leverage path, not P/E (the earnings are negative/trough), versus vehicle-rental peers Hertz Global (which went through a worse 2024-2025 fleet/leverage crisis — a comp and a cautionary tale), Enterprise Holdings (private — the largest, most conservative US rental company) and Sixt (the aggressive European/expanding-US challenger), with travel-recovery names and Turo as adjacent comps. FY2026 base case is ~$11.5-12.5B revenue + a recovering adj. EPS (toward break-even-and-better) + adj. EBITDA recovering from the 2024-2025 trough + the corporate leverage ratio coming down + much-reduced buybacks; bull case a substantial equity re-rating (potentially a multi-bagger if the recovery is real) on a stable/strong travel environment, RPD/pricing holding on industry discipline, utilization management, per-unit fleet costs normalizing fast (used-car prices firm, EV exposure reduced, OEM supply favorable) → the EBITDA recovering toward a 'normal' ~12-15%+ margin, the corporate leverage ratio coming down sharply, fleet-ABS refinancing at good rates, and a resumption of buybacks or a take-private at a higher valuation — the leverage and the tiny share count multiplying the recovered EBITDA; bear case the equity sharply lower (a binary-risk scenario) on a price war, share loss, the recovery not happening (used-car prices falling further, EV losses continuing, OEM supply unfavorable → fleet costs staying high → no margin recovery), a travel-demand downturn (a recession), the fleet-ABS market freezing or repricing (a credit shock / Hertz contagion), the corporate leverage staying stretched → a downgrade → higher borrowing costs → the equity (behind the huge debt load) at serious risk → potentially a restructuring scenario. The thesis depends on the Vehicle Rental pipeline plus the Fleet Management / Capital Structure pipeline plus per-unit fleet costs normalizing (the whole story) plus the EBITDA recovering from the 2024-2025 trough toward a 'normal' ~10-15%+ adj. EBITDA margin plus the corporate leverage ratio coming down plus fleet-ABS market access plus a stable-to-strong travel environment plus industry pricing discipline and the management/governance executing the fleet-cost-normalization, EBITDA-recovery and deleveraging fix.