By Paul R. La Monica, CNN Business
Hertz has been in the headlines lately thanks to its deals with Tesla and Uber. Wall Street has noticed it too. But competing car rental company Avis Budget does even better.
Avis Budget shares have jumped 125% since July and are up 370% so far in 2021. The company will release its third quarter results after the closing bell on Monday. Needless to say, the expectations are high.
Hertz stock, which is currently listed on the Nasdaq bulletin board and hopes to return to regular Nasdaq through an initial public offering, is up 40% since the company emerged from bankruptcy earlier this year. and resumed operations in July. Still, it’s nothing compared to its rival’s stock.
Analysts predict Avis Budget sales are up 77% from a year ago and earnings per share have almost six-fold. The return of leisure and business travel this year, as more customers have been vaccinated against Covid-19, has helped Avis Budget bounce back from 2020.
Growing demand for travel and rental cars
Avis Budget CEO Joe Ferraro said during the second quarter earnings call with analysts in August that the 75-year-old had record sales and profit margins.
“Since the onset of the pandemic, we have been consistent with our message that Avis Budget Group would emerge from this disruption a transformed business,” said Ferraro, “and our focus on cost discipline and operational efficiency would position us for make the most of a travel rebound.
Avis Budget also has a potential trump card up its sleeve that could lead to even bigger gains in terms of sales and profits: a fleet of used cars that it can sell to dealers or consumers.
Used car prices have skyrocketed over the past two years due to a global semiconductor shortage that has hampered the production of new vehicles.
Ferraro noted in August that Avis Budget had not sold any of its fleets in the second quarter because it needed vehicles to meet rental car demand. But he hasn’t ruled out further sales in the future.
“I still think the used car market has legs,” he said. ” How long does it last ? I am not totally sure. But I think there are tailwinds on this. “
Is it time to go into reverse?
Still, Wall Street is worried about whether Avis Budget’s stock has gone too far too fast.
According to Refinitiv, only three analysts recommend buying the stock, four have it in reserve and one rated it as a sell. The consensus price target for the stock is around $ 128, which is almost 30% below current levels.
Many investors are betting that the stock will go down. Over 20% of Avis Budget’s shares are held short, which means traders immediately borrow and sell them in the hopes of buying back the shares at a lower price and making a profit on the margin when they do. return the shares to the lender.
Air travel disruptions could also slow demand for rental cars. American Airlines has been forced to cancel more than 2,000 flights since Friday due to weather issues and labor shortages. The Southwest has also been plagued with cancellations recently.
Other airline issues could be problematic for Avis Budget. Ferraro said in August that the rebound in air travel had given the business a big boost this summer.
“Our activity at the airport has been quite solid. And it continues, ”he said. “The airports are very busy and the airlines are crowded, and our business is also busy.”
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