What happened
A prominent investment bank shaved its price target on Avis Budget Group's (CAR -3.18%) stock on Wednesday morning, and the market reacted by bailing out of the shares. The vehicle rental giant closed the session more than 5% lower as a result.
So what
Morgan Stanley (MS 0.20%) analyst Adam Jonas now has a slightly dimmer view of the prospects for Avis. The prognosticator cut his price target to $156 per share from his previous $168. Perhaps more crucially, he's maintaining his underweight (i.e., sell) recommendation.
Jonas is most concerned with pricing, which he expects will probably revert to the long-term average for rental agencies. According to his estimates, the average price Avis will be able to charge customers is $60 per day, down notably from the current figure of $73.
Car rental prices have risen due to the worldwide shortage of computer chips, which are essential components in today's vehicles. The resulting slowdown in new car production has driven up demand for alternatives, like used vehicles and rentals.
Now what
Jonas isn't the only one getting colder on Avis. The stock took a brief bounce last month after the company reported impressive first-quarter results. These featured a convincing beat on the top line and an absolute thrashing of analysts' profitability estimates.
Since then, however, the stock has sagged due to many of the same concerns the analyst just focused on. While Jonas wasn't laying out any surprising or unexpected factors for Avis, his price target adjustment was a stark illustration of these worries, and investors responded accordingly.
