$5.8 Billion in Buybacks—But What Did Avis Stock Actually Buy?
Avis Budget sent a torrent of cash back to its owners, but a look at the stock chart raises a sharp question about what that money truly bought.
Avis Budget (CAR) Group’s stock has seen better days. Trading around $153, shares have fallen 40% in the last three months and are down 16% over the past year, significantly underperforming the S&P 500. Yet behind that grim performance lies a huge fact: over the last five years, the car rental company has returned $5.8 Bil to its shareholders. That figure equals about 107% of the company’s entire current market value. The sheer scale of that payout, especially against the stock’s recent weakness, forces a critical question for any owner: What did that mountain of cash actually purchase, and is the underlying business model still delivering?
The cash came from a disciplined, if cyclical, business.
The money machine at Avis is the straightforward, asset-heavy business of renting cars. The entire $5.8 Bil returned to owners came in the form of share repurchases, a sum that exceeds the $5.7 Bil returned by the median S&P 500 company. The key to generating that cash is fleet management. Recently, management has focused on what it calls a “deliberate decision to better align supply with demand.” In the latest quarter, while airport passenger volumes grew, the company actually reduced its fleet by 0.6%. This supply discipline is paying off, driving the first quarter of positive pricing in its Americas segment since the fourth quarter of 2022.
The payout coincided with higher leverage and slower growth
While the buybacks were enormous, the total return for shareholders was more complicated. Over the five-year period, the stock’s price return was +104%, beating the S&P 500’s +86% gain. But that cash wasn’t free. It was money not spent on paying down debt or investing in growth, reflected in the company’s three-year average annual revenue growth of -3.0%. The most significant trade-off is on the balance sheet. The company’s net corporate leverage ratio stood at a high 7.6x as of its last report. Management has made debt repayment a priority, aiming to get that figure below 6x by year-end. This elevated leverage level is compounded by business risk; an influx of off-lease vehicles could soften used car prices, threatening the profitability of Avis’s fleet dispositions and squeezing the very cash needed to service its debt. The challenges are not unique to Avis; a recent analysis of its peer Hertz explores similar pressures facing the industry.
The machine’s future depends on pricing power.
For the cash-return story to continue, the company’s new focus on supply discipline must translate into durable pricing power and, critically, earnings growth. Management believes it has reached a “meaningful inflection point” after seeing revenue in its Americas segment grow 2.9% year-over-year in the first quarter, the first such increase in 10 quarters. The clearest test of this strategy is management’s own forecast. After a strong start to the year, the company is raising its full-year guidance. The one number to watch is whether Avis can deliver on its new target range of $850 million to $1 billion in adjusted EBITDA. Hitting that goal would prove the new discipline is working, generating the earnings required to fix the balance sheet and perhaps, one day, restart the machine.
Curious which companies write the biggest checks to their owners? Our Buybacks & Dividends ranking ranks every name we track by total cash returned.
Buybacks Reward Holders. Concentration Punishes Them
A company returning this much cash is shareholder-friendly – but even the most generous payer is still one company, and if it dominates your portfolio, one bad stretch outweighs years of dividends. Selling to re-balance hands a slice to the IRS. There is a way to keep the income and diversify out without the tax hit.