JP Morgan has initiated coverage of the Zipcar with a neutral rating, based on a December 2012 price target of $29.50.Analyst Paul Coster explains why it could be an attractive bet:
- Zipcar has 75% of the global market share in auto-sharing. It also has competitive advantages because of its reach. It also plans to expand in two new U.S. cities every year and is pursuing the European car market through its acquisition of Streetcar in 2010.
- Zipcars give consumers the benefits of auto-ownership without the high cost, and could be a sustainable form of consumption in an urban world with restricted resources.
- The report cited Frost & Sullivan’s forecast of 10-fold growth in car-sharing members through 2016, and 44% revenue compound annual growth rate (CAGR) to $3.3 billion in just the U.S.. JP Morgan predicts 25% revenue CAGR through 2014.
- It does however have competitive risks. The fact that Zipcars scale one market at a time gives competitors room to jump on untapped markets.
Goldman Sachs meanwhile considers Zipcars to be an attractive hybrid between an internet model and a traditional car rental business.
- “…In our view, ZIP has one of the more compelling revenue growth trajectories across our travel/hospitality, and internet coverage universes, brand value as a market leader, & first mover with technology expertise in the new car sharing segment, as well as significant margin improvement opportunity.”
- Based on the $24 price target, Zipcar shares are expected to trade at 45x our 2013E EPS.
But Goldman warned against rising competition and exposure to higher fuel costs.
Zipcar has had losses every year since it was established but is expected to move to profitability as markets mature. The company’s share price debuted at $18 back in April and closed at $25.20 yesterday.
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