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Why Avis Budget Group Shares Got Crushed on Monday

By Eric Volkman – May 11, 2020 at 6:57PM

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Its arch-rival fell well short of expectations in its latest quarter, highlighting the perilous state of the car rental industry as a whole.

What happened

One of the businesses sustaining the most economic damage from the SARS-CoV-2 coronavirus outbreak is the automobile industry, since "stay in place" mandates have drastically reduced the need to drive anywhere.

This has a bad knock-on effect for the car rental industry. This, combined with an awful earnings report from arch-rival Hertz Global Holdings (HTZG.Q) on Monday, is likely what drove Avis Budget Group's (CAR 4.93%) stock down by nearly 11% on the day.

Car parking lot at night with no people in view.

Image source: Getty Images.

So what

Since Avis and Hertz are the two titans of car rental, developments in one affect investor sentiment in the other.

So it's no wonder investors sold of out Avis, after the latter's ,first quarter of fiscal 2020 revenue fell 9% -- like Avis in its own Q1 -- and landed well short of analyst expectations. Meanwhile, Hertz's net loss was much deeper than those prognosticators' collective estimate.

Avis seemed to be in slightly better shape, but that's only because, unlike Hertz, it's not on life support with its creditors (last week Hertz received a last-minute extension from them to rework some of its $17 billion in debt). 

At least, not yet. In order to stay liquid, Avis recently floated $500 million worth of high-yield debt securities.

Now what

Expensive debt, a stricken business, and a rival's quick fade is a bad mix for a stock. Investors traded Hertz down last week as if it were a falling knife, and they seem to be coming around to the same sentiment with Avis.

 

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Avis Budget Group, Inc. Stock Quote
Avis Budget Group, Inc.
CAR
$145.72 (4.93%) $6.85
Hertz Global Holdings, Inc. Stock Quote
Hertz Global Holdings, Inc.
HTZG.Q

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