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Why Shares of Avis Budget Tanked 10% Wednesday

By Daniel Miller - May 6, 2020 at 5:03PM

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Avis shares took another dive Wednesday amid gloomy economic data.

What happened

Shares of vehicle-rental company Avis Budget Group (CAR -4.22%) declined 10% Wednesday as markets continued to digest news for the hard-hit auto industry and gloomy economic data.

So what

First, taking a look at broader economic data that sent the Dow roughly 200 points lower toward the end of Wednesday's trading session, the U.S. private sector cut a record 20.2 million jobs in April, the latest sign of how devastating the COVID-19 coronavirus pandemic has hit the economy. All eyes will look to states loosening their stay-at-home orders, in hopes of gradually reopening the economy, for a better idea of how slowly or quickly the economy could recover. One of the hardest-hit industries has been the automotive sector, especially the car rental business that has sent shares of Avis and rival Hertz Global Holdings (HTZG.Q) spiraling compared to the S&P 500. 

HTZ Chart

HTZ data by YCharts

Avis was even forced to tap the junk bond market for $500 million to borrow at double-digit rates to weather the COVID-19 storm that has decimated its business. Avis expects brutal back-to-back months of revenue that will spiral 80% lower in April and May as travel restrictions cripple rental business. Hertz plunged to new lows Tuesday after it announced that last-second forbearance from lenders bought the company some time. The company now has until May 22 to develop a strategy that "better reflects the economic impact of the COVID-19 global pandemic," Hertz wrote in a filing.

Rows of cars in a dealership lot

Image source: Getty Images.

Now what

Avis appears to be better positioned to survive the COVID-19 pandemic, compared to Hertz, but it's difficult to picture any winners at this moment. Avis had $1.6 billion in liquidity at the end of the first quarter and believes it can last through 2020 with no meaningful corporate debt maturities until 2023. Investors should expect volatility with Avis and Hertz, as any change in economic expectations could disrupt any strategic plan they come up with to outlast the pandemic.

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Stocks Mentioned

Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
CAR
$148.93 (-4.22%) $-6.57
Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
HTZG.Q

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