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BofA Securities views the improved travel industry as a “rising tide that lifts all boats” including the rental car industry. The bank initiated coverage for both Avis (NASDAQ:CAR) and Hertz (NASDAQ:HTZ) at Buy and Neutral, respectively, reflecting on the fundamentals for both that should favor Avis (CAR) in a bullish travel environment.
Avis’ (CAR) efforts at operational efficiency and steadier pricing leave it better positioned over peers, BofA says. And after a recent sell-off that was triggered by downbeat Q4 results, the stock is at an attractive entry point. BofA Securities sets its price target at $170 which would place CAR slightly above its pre-sell-off level.
While Avis (CAR) is struggling to recover from Q4 results that revealed an increase in fleet costs, Hertz (HTZ) has taken aggressive measures to reduce theirs, specifically with the sale of 20K electric vehicles, or one-third of its EV fleet. Unfortunately, Hertz (HTZ) continues to carry a heavy debt load post-bankruptcy and interest charges on its fleet will remain a headwind to profitability, says BofA analyst Andrew Didora.
“Interest costs will likely rise meaningfully in 2024 and 2025 [by $80M or more] with $3.8B in low-cost debt maturing, offsetting benefits from elsewhere,” said Didora in Tuesday’s research note.
Diadora also based his Neutral rating on the lack of tenure in the executive team with major turnovers that included the CEO late last week, and the COO and CFO last year.
“We’d like to see more stability as the most significant risk is management being unable to execute on its strategy, which following the CEO’s recent departure may also be in flux,” Didora added.
Didora gives Hertz (HTZ) a $9 price target based on an EV/EBITDA multiple of 8x 2025E.
Of the two, Seeking Alpha authors also favor Avis (CAR) over Hertz (HTZ) with Avis (CAR) rated a Hold by Seeking Alpha authors and a Buy from Wall Street analysts, while Hertz (HTZ) is given a Hold by both. Seeking Alpha's Quant Rating views Hertz (HTZ) as a Strong Sell.