AVIS BUDGET GROUP, INC. (CAR) stock intrinsic value fair value estimate & owner earnings analysis

Avis Budget rents cars under the Avis and Budget brands (plus Zipcar), mostly from airport counters in the United States, Canada, Latin America, Europe, Australia and New Zealand. Almost everything about its economics comes down to the fleet. Each year the company buys roughly $10-15 billion of vehicles and sells roughly $7-10 billion of them, funding the cars with about $19 billion of vehicle-backed borrowing. That vehicle debt is secured on the cars, and the cars are liquid (in 2020 the company shrank its fleet quickly to raise cash), so we treat it as part of the cost of running the fleet: the annual depreciation, the gain or loss on resale and the roughly $0.9 billion of vehicle interest are all charged against earnings every year. Growth in the size or price of the fleet that is funded by vehicle debt is not counted as a cost of staying in business. What the shareholders must carry separately is about $6.1 billion of corporate bonds and a term loan, against $519 million of cash. The cash the business generates after fleet replacement, taxes, stock compensation and ordinary capital spending, but before corporate interest, was $780 million, $619 million, $549 million and $564 million in 2016-2019. The 2020 shutdown produced a loss of $322 million. In 2021-2023 it ran at $2.3 billion, $3.8 billion and $2.4 billion, only because used-car prices soared and the company booked large gains selling cars ($361 million, $1.0 billion and $656 million); we treat those years as a windfall that is not repeatable. In 2024 it was $625 million and in 2025 $395 million. Both recent years carry electric-vehicle disposal costs: the 10-K ties a $180 million write-down in 2024 and $390 million of disposal charges in 2025 to rotating out of US EV rental cars in connection with the Interpace Ventures transaction. Without those items the figures would be roughly $805 million and $785 million. We did not lift the starting level to that, because two straight years of fleet write-downs suggest fleet costs were under-recognised earlier; instead we start from the middle of the normal years (2016-2019, 2024 and 2025 as reported): about $590 million a year. Reported 2025 cash flow fell 37% from 2024, but the base case does not assume growth from here: it holds at $590 million, and the gap to 2025's $395 million is the $390 million of one-time EV charges. We credit no growth: the market is not expanding on any evidence we can cite, and the Dallas partnership with Waymo to operate autonomous-vehicle fleets (July 2025) has no disclosed economics. Base case: $590 million a year for 20 years (a franchise with airport concessions and brands that has run through the 2020 shutdown, with ten years of filed results showing no collapse), after which we assume nothing. The business is worth about $6.8 billion today. The corporate borrowings come to roughly $6.2 billion once we count the $6.1 billion balance, about $300 million for the fact that the debt costs roughly 7% a year (about $430 million of annual interest), and subtract $250 million of cash beyond what the business needs. The difference is about $0.6 billion, or $16.66 a share on about 35.3 million diluted shares. The cushion is thin: the shares are worth nothing if the business produces much less than about $540 million a year. Bear case: 2025's weak level persists for two years, then a downturn on the scale of 2020 (a swing of about $890 million from the 2019 level, taken as a loss of $320 million in one year), a partial recovery, and a permanently lower level of about $300-350 million a year, reflecting the 2016-2019 slide from $780 million to $549 million, and fading to nothing by year 20. The business is worth about $2.4 billion against about $6.2 billion of corporate debt: the company owes about $3.8 billion more than it is worth, or about $106 a share. In practice shareholders would be wiped out and bondholders would take the business. Maturities of $645 million (July 2027), $500 million (April 2028) and $1.3 billion (2029) would have to be refinanced in or near that downturn. Bull case: the business simply returns to the $800 million a year it earned in 2024 and 2025 without the EV charges, held for 20 years. That is worth about $9.2 billion, leaving about $3.0 billion for shareholders, or $84.89 a share. We did not include new products, more share or a market recovery. How we reached the margin-of-safety price. We are moderately sure of the level: six normal years ranged from $395 million to $780 million, and the accounting around vehicle-related reserves ($351 million added back in 2025 cash flow) could not be fully matched to cash payouts in the filings. Each $50 million a year of business cash flow moves the shares by about $16, so we could easily be wrong in either direction: at $450 million the shares are worth nothing, at $700 million they are worth about $52. The worst plausible outcome is another sudden fall in used-car values plus tight credit for vehicle-backed bonds, which no case models in full; the shareholders' equity is already negative $3.1 billion, there is no dividend, and only the secured, liquid fleet and the lack of corporate maturities before July 2027 keep the structure alive. The price assumes a holding period of three to five years, during which the company pays down only a modest amount of corporate debt. For those reasons the margin-of-safety price is $7 a share: at that price the risk of the equity being worth nothing is real, and only a sustained $590 million level supports a large return in the base case.