Everyone is saying "follow the insiders, they have vested intrest" They have been buying....... Found this while surfing. Does anyone know this analyst? Thanks
Budget Group: Is it Headed Back to the Fast Lane?
Analyst: Glenn S. Curtis
Budget Group (NYSE: BD), one of the world's most well-known car rental companies with over 1,000 rental outlets throughout the world, has certainly disappointed more than a few investors over the past year.
Less than a year ago, its shares were trading at almost $40 per share. But, just when investors were getting that warm, fuzzy feeling the bottom fell out.
A plethora of problems has plagued the company over the last several quarters leading the company to pre-announce a heap of restructuring charges in the fourth quarter ending December 31, 1998. However, insiders used this bad news as an opportunity to purchase shares in anticipation of a turnaround. In early December, a group of officers and directors bought more than 146,000 shares at an average price of $12.82 per share. The stock closed Wednesday at $14.75.
Budget's biggest problem: It was hurt badly from a price war with feisty rivals Alamo and Dollar. This problem was compounded by the fact that the company was very slow to cut prices to defend its niche business, "mid to upper range" customers.
Budget also had a problem with its existing repurchasing agreement with Ford Motor, its major supplier of cars. It seems that Budget was penalized for exceeding the mileage cap when it sold the vehicles back to Ford.
Budget also had trouble tying its computer systems with those of recently acquired Ryder TRS, a roughly $550 million per year truck rental company with over 4,000 rental outlets.
Finally, the company has downsized its workforce by about 400 employees. The end result of all of the above predicaments will result in the loss of about $55 million, or $1.45 in the fourth quarter of 1998. Without any of the turmoil earnings for the year would have been approximately $1.02 per share.
Solving the Problems:
However, the company has since adjusted its prices so that it may better compete with lower-end renters such as Dollar and Alamo. The company has also set up a system whereby pricing changes will be monitored constantly by both computers and management. This will allow the company to respond quicker to changes in the market place.
The company has also renegotiated some of its repurchase agreements with Ford, and has spent a greater time focusing on the most efficient ways in which to balance cars and car types between locations so that transportation of a vehicle from one rental center to another does not rack up miles.
And finally, the new systems at Ryder are expected to be up and running by the first quarter of 1999.
Can Budget successfully pull off these changes and get back in the fast lane. The company seems to think so. In its press release announcing the anticipated fourth-quarter charges management noted that the company anticipates 1999 diluted earnings per share to be between $1.80 and $2 per share on $3.3 billion in revenue, up from an estimated $2.6 billion in 1998.
However, Goldman Sachs analyst Meg Saegebarth, who rates Budget a "market-outperform" says "it is too early to tell. Obviously the company has said all of the right things and has addressed many concerns. The question is will they execute according to plan in 1999?"
Another problem which could throw a wrench into the company's plans: It will likely have sizeable expenses in the near future related to start-up costs for its German operation. The reason for this is that Budget recently severed ties with its sole licensee in that country. The company has set aside roughly $4.5 million in start-up expenses for the fourth quarter. Over longer-term the company will likely require additional capital to sufficiently finance operations so that this market is sufficiently addressed.
Certainly from a value standpoint, the stock seems appealing. As of September the company had unrestricted cash and equivalents of $118.5 million, or roughly $2.52 per share, which works out to 17% of its Wednesday closing price. The company trades at 0.1 times sales and less than 9 times 1999 estimates.
Bottom Line:
Follow the insiders. They own approximately 50% of this company and have a vested interest in enhancing shareholder value.
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