Key insights
- The article discusses Verra Mobility (VRRM) after a 70% stock sell-off due to losing the Avis contract, which represented 10-13% of revenue. Despite this, management guidance remains strong for revenue, EBITDA, and free cash flow. The primary concern is $1B in net debt. The bear case suggests other major clients might leave, but the author questions if the current market cap is justified if key customers remain, implying potential undervaluation if the bear case doesn't fully materialize.
The stock is down roughly 70% after losing the Avis contract. From what I've read, Avis represented around 10-13% of revenue, which is obviously significant, but the market reaction seems to imply a much broader deterioration of the business.
What stands out to me is that even after the contract loss, management is still guiding for roughly $990M in revenue, ~$380M in EBITDA, and around $145M in free cash flow.
The company does have close to $1B of net debt, which is the biggest concern in my view. But if EBITDA remains anywhere near current guidance, the balance sheet doesn't immediately look distressed.
The bear case seems straightforward: Avis is the first domino, and Hertz/Enterprise eventually leave or renegotiate as well.
But if the remaining major customers stay, is a market cap of roughly $700M really justified for a business still expected to generate over $100M in annual free cash flow?
I've only recently started looking into the company, so I'm genuinely curious what the market is seeing that I might be missing.