Shares of Avis Budget Group (NASDAQ:CAR) and bankrupt rival Hertz (OTC:HTZG.Q) jumped 11% and 8%, respectively, on Wednesday after news that Melvin Capital Management had opened up a position in Avis.
Riding alongside the late-afternoon broader market rally, Avis stock jumped double digits after Melvin Capital disclosed a 5.8% stake in the rental company. It's been a common theme among investors and analysts that Avis will benefit from the Hertz bankruptcy once travel and transportation demand returns, assuming the COVID-19 pandemic will eventually be under control.
That said, what happens with Hertz in bankruptcy is anyone's guess, and the company is still operating with its limited cash on hand while negotiations are held in bankruptcy court. As you can see, despite the initial short squeeze after Hertz filed for bankruptcy, investors have treated the two companies very differently, and appropriately so.
This also serves as a good time to remind investors that, despite Hertz's 8% pop today, the shares are almost certainly going to end up worthless. Hertz has a staggering $19 billion in debt, and a vast majority of that debt is tied to the financing of its vehicle fleet. But since the pile of debt is so large, there's almost no chance any value will be left for shareholders as creditors and other lenders will be the first to eat. That slim hope for shareholders to receive any value is why billionaire hedge fund manager Carl Icahn has already thrown in the towel and sold his nearly 40% stake in Hertz at a massive loss.
And the New York Stock Exchange notified the company that it would be delisted, meaning its shares will become less liquid in the near term (although Hertz is appealing the decision). Investors would be wise to take Hertz's 8% gain today with a grain of salt and to continue watching from the sidelines. If you want to invest in a potential rebound in rental vehicle transportation stocks, Avis is the choice.