Renting a car seems like a rather mundane business, certainly not one that would elicit any tales of exciting growth opportunities. But perhaps as an adjunct of an improving economy, the industry is in the midst of a turnaround that is in many ways mirroring the growth experienced in the overall travel business.
Rental agency Dollar Thrifty Auto Group
Sitting up on blocks
Last year Hertz had bid for and lost to a shareholder vote an offer of $1.5 billion. Avis Budget Group
As Dollar Thrifty's quarterly results show, but which are also born out by others too, rental cars are back. Priceline.com
The better prospects for rentals have actually lifted sales at carmakers Ford
A speedy recovery
The advent of the shared rental car as exemplified by Zipcar
It's an attractive business model that's drawn the attention of both Hertz and privately held Enterprise Rent-a-Car, though the latter wonders about the sustainability of the model. Zipcar had a net loss of $14 million in 2010 and doesn't expect to be profitable in 2011, either, so it might only warrant being placed on your watchlist at this time. With earnings due out this week, we'll get to see how well it performs on the open road.
It Hertz so good
With Avis posting better year-over-year results, handily beating analyst expectations, and Hertz losing less as demand strengthened, Zipcar may just surprise to the upside. And a sweetened offer from Hertz for Dollar Thrifty may entice shareholders to hitch a ride with the industry leader after waiting so long on the side of the road for Avis to drive by. Considering market valuations are in the low double digits, and the industry just getting ready to step on the gas, both Hertz and Avis might be worth a test drive for your portfolio.
Do you see car rental companies on the road to riches or down a path to the poorhouse? Sound off in the comment box below.
General Motors is a Motley Fool Inside Value selection. Ford Motor and priceline.com are Motley Fool Stock Advisor picks. The Fool owns shares of Ford Motor and Hertz Global Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.