Hertz Stock Up 150% on $1.65 Billion DIP Financing: Should You Buy HTZ?
Avis shares have surged more than 45% since Hertz filed for bankruptcy shortly before Memorial Day. In contrast, Hertz shares fell nearly 50%, even though they were hugely popular in intraday trading last month..
Some analysts expect Avis, which also owns car rental company Budget and car-sharing service Zipcar, to avoid the fate of Hertz..
On the one hand, Avis does not appear to be at such immediate risk of escalating losses as Hertz, with its heavily indebted.
Avis said in its first quarter income statement in early May that it has $ 1.6 billion in liquidity that should be «sufficient … for the balance of 2020 and 2021».
In addition, Avis may sell some of the used cars that sit idle at airports to raise even more money, says an analyst at Millman Research Associates. Michael Millman.
In his report for this month, Millman noted that «used car prices rose significantly in July», what can become «pleasant surprise» for Avis revenues in the second quarter.
He added that Avis, as well as its competitor in the Enterprise consumer segment, "has some success in acquiring part of the Hertz contract business. This applies to both the consumer segment and corporate business.".
Millman also noted that Avis can benefit from consumers taking longer journeys by car rather than flying.. «This could allow the company to raise mileage charges as part of the total car rental fee.», – he said.
However, the analyst Frank Kerzio, Founder and CEO of Curzio Research believes the second half of this year will be challenging.
«Renting a car is safer in today’s environment when everyone wants to avoid crowds. The Avis business is likely to be in trouble in 2020, but that’s to be expected, Curzio writes in the report. – Sales and revenues will skyrocket in 2021 when restrictions end and millions of people start traveling again».
However, there are signs that international consumers are choosing car rental over public transport due to lingering concerns over Covid-19, Curzio added. This could bode well for Avis, which received around 30% of its first-quarter revenue outside the US..
According to Curzio, Avis has the advantage that the management team has done a tremendous job of cutting costs and moving the debt to 2023. It gives him the financial cushion Hertz lacked.
Analysts also hope that Avis’s new leadership will be able to steer the company into a brighter future. Avis announced last week that it is confirming permanent CEO Joe Ferraro, 40-year-old company veteran who has been its interim manager since December.
Analyst at Deutsche Bank Chris Funnel noted that Ferraro is «the right leader for [Avis] during an unprecedented decline in travel», adding that «most of all the company needs an experienced industry veteran».