Avis stock is buy, as BofA says it is the only investable name in the rental car market The Ratings Game

Tomi Kilgore

Shares of Avis Budget Group Inc. turned lower Monday, but BofA Securities analyst Aileen Smith recommended investors buy, targeting a more-than 20% gain.

The vehicle rental and car-sharing company’s stock /zigman2/quotes/203618115/composite CAR +3.78% climbed as much as 4.1% to an intraday high of $42.75, before reversing course to fall 0.9% in midday trading.

BofA’s Smith initiated coverage of Avis with a buy rating and stock price target of $50, which was 21.8% above Friday’s closing price of $41.05. She said Avis is the third largest car rental car company but effectively the only investable name in that market, as No. 1 Enterprise is privately held and No. 2 Hertz Global Holdings Inc. /zigman2/quotes/200655672/composite HTZGQ +34.38% is bankrupt.

The stock had skyrocketed 427.6% since tumbling to an 11-year, post-COVID-19 closing low of $7.78 on March 18 through Friday, and has soared 145.5% since Hertz filed for bankruptcy after the May 22 closing bell.

In comparison, Hertz’s stock has dropped 44.7% since it went bankrupt through Friday, while the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.95% has advanced 30.0%.

“[Avis] stock has more than quintupled since March 2020 lows, so naturally we expect the question: ‘Why buy now?'” Smith wrote in a note to clients.

Smith gave three reasons to buy now:

She said Avis as been the best investable performer in a U.S. rental car market that is small, mature, competitive and volatile.

“Despite the challenging nature of the industry that has been particularly acute over the past few years, [Avis] has generally been the much better managed and better performing public rental car company in comparison to its only relevant peer Hertz,” Smith wrote in a note to clients.

She sees potential for the expansion of valuation multiples over the coming years, if Avis continues to perform better than expected in a post-COVID-19 world. That includes executing on its “turnaround/transformation” plan, such as expanding the off-airport business, improving the customer experience through technology, growing alternative disposition channels to improve fleet cost and pursuing broader cost efficiencies.

Avis Budget is the parent of the Avis and Budget rental car companies and the Zipcar car-sharing company. The company is scheduled to report fourth-quarter and full-year 2020 results on Feb. 16.

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