Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Avis Budget Group Rose as High as 7% on Monday

By Eric Volkman – Jul 6, 2020 at 12:32PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A glowing analyst recommendation continues to power the company's stock.

What happened

Ah, the power of an influential analyst recommendation. Avis Budget Group (CAR 0.06%) continued to accelerate on Monday, following a significant upgrade and recommendation change on the stock from Morgan Stanley on the previous trading day.

Analyst Adam Jonas boosted his rating on the company's shares to overweight (i.e. buy) and lifted his price target by almost 50% to $37. This propelled Avis to not only a double-digit gain in Thursday trading but to also move it 7% higher at one point on Monday.

Customer securing Avis car rental with a smartphone.

Image source: Avis Budget Group.

So what

His analysis is based on car sales estimates. Prices for Avis' fleet components won't fall as much as he previously anticipated in the wake of the economy-draining coronavirus outbreak -- 5%, as opposed to the former 10% estimate. Next year, in his view, they will start to rise again.

Avis bulls might also be cheered by the fact that before the pandemic, the company was hardly doing badly. Its annual revenue rose 6% in 2019 to notch a new company record at $2.2 billion, and it ended the year in the black with a non-GAAP (adjusted) net profit of $54 million.

Now what

Similar to bankrupt archrival Hertz, Avis is not out of the coronavirus traffic jam yet. The bug will continue to wreak havoc on the car rental business overall, and the rest of 2021 -- at the least -- will be a trying time for Avis no matter how better than expected it does with car sales.

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.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.