A sign is posted in front of an Avis Budget rental car office on July 28, 2020 in San Rafael, California.
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Avis Budget Group shares were racing higher after J.P. Morgan upgraded the vehicle-sharing company’s stock.
Analyst Ryan Brinkman raised his rating on Avis (ticker: CAR) to Neutral, given the stock has significantly come down since early November, when a standout third-quarter report triggered a rapid rise in the shares. That month, Brinkman had double-downgraded the stock to Underweight all the way from Overweight because of its precipitous climb.
Avis jumped more than 7% to $182 in recent Wednesday trading.
The company on Nov. 1 reported strong third-quarter earnings of $10.74 a share, far above estimates of $7.24 a share and provided commentary on its electric-vehicle strategy. The next day came a short squeeze, where the stock skyrocketed more than 200% to $545.11, before closing at $357.17, leading Brinkman to double-downgrade the stock to Underweight that week.
J.P. Morgan upgraded the stock Wednesday now that it has surrendered all of those November gains and then some, while rental car demand is expected to increase as economies reopen. Add to that, Avis’s pricing remains elevated; one factor affecting the sector is the “limited supply of rental cars due to the semiconductor chip shortage,” the note states.
Brinkman, however, lowered his price target on the company’s stock to $205 from $225 previously, in part because of slightly lower revenue estimates. For the full-year 2021, Brinkman expects $9.1 billion in revenue compared with $9.23 billion previously. Analysts tracked by FactSet expect $9.08 billion.
Despite all of the positive factors, Avis’s stock remains much more expensive than rival Hertz Global Holdings (HTZ). Avis trades at 5.5 times its next 12 months’ Ebitda—earnings before interest, taxes, depreciation, and amortization. Hertz, meanwhile, trades at just 3.4 times its next 12 months’ Ebitda, the note highlighted.
“We see solid +21% upside to our new $205 price target, although this is less than in the case of Hertz, which we continue to prefer on lower valuation,” Brinkman said.
Write to Karishma Vanjani at [email protected]
