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6 Earnings Champs That Look Like Solid Bargains

Avis Budget Group

Rental car firm Avis Budget Group (CAR) is delivering solid upside -- relative to analysts' forecasts -- for an unusual reason. The company re-acquired Avis Europe last October, which had been sold off a number of years ago. When the deal closed, management promised a wide range of cost cuts and cross-selling synergies that would boost the company's profit profile. And analysts apparently failed to account for those gains in their earnings models.

>>3 Auto Stocks to Buy Instead of Ford, GM

To give you a picture of the benefits of the deal, Avis Budget noted that the acquisition was a big factor behind a 32% jump in revenue in the second quarter. Yet EBITDA grew at an even faster pace: 39%. That's the power of cost cuts. Earnings per share rose a solid 49%, compared with a year ago. Look for more good numbers for the rest of the year. Management expects to deliver more synergies in the third and fourth quarters.

Taking a broader look at the impact of this deal, Avis Budget's annual EPS power is likely to rise from $1.65 a share in 2011 to around $2.50 a share in 2012. EPS may stay stuck in that range in 2013 while the U.S. and European economies stay weak, but by mid-decade, a firmer global economy could spike EPS well past the $3 mark, and perhaps towards the $4 mark.

Shares look like a bargain in that context, trading at a recent $16 and change.
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BAC $11.95 7.08%
GS $146.13 3.87%
JPM $57.49 8.33%
TEX $20.54 2.60%
WDC $41.08 2.44%


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