Hertz Global Holdings, Inc. (HTZ), Avis Budget Group Inc. (CAR): The Rental Business Beats Owning

Page 1 of 2

What I like about the rental business is that there aren’t a lot of competitors. In the car rental space, you have Hertz Global Holdings, Inc. (NYSE:HTZ), Avis Budget Group Inc. (NASDAQ:CAR), and privately-held Enterprise. In the past decade, the number of competitors has gone from six to three as the industry consolidated. These three companies now control 90% of the market and that gives them tremendous pricing power. Prices for car rentals are now rising, with rentals from Hertz rising 5.3% at airports. As car rental prices increase, that drives the top and bottom lines for the car rental companies.

The rental giant

Hertz Global Holdings, Inc. (NYSE:HTZ)

Hertz Global Holdings, Inc. (NYSE:HTZ) is the rental industry’s largest publicly-traded company. The company’s primary car rental locations are at or near airports in approximately 150 countries. Hertz also has a growing equipment rental business with approximately 340 locations in the U.S., Canada, China, France, Spain and Saudi Arabia. Hertz rents all types of heavy and light equipment for various industries.

The first quarter of this year was a great one for Hertz Global Holdings, Inc. (NYSE:HTZ). Worldwide revenues were up 24.3% in the first quarter. The North American equipment rental business increased 20%. The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 74.2% year-over-year. Pretax income was $144.5 million compared to $29 million in the prior year’s quarter.

Going forward, Hertz Global Holdings, Inc. (NYSE:HTZ) is targeting Enterprise’s off-airport business. Enterprise’s locations are primarily in neighborhoods and rental times are typically longer. Hertz has about 2,600 neighborhood locations now, compared to about 5,500 locations for Enterprise. Hertz Global Holdings, Inc. (NYSE:HTZ) plans to add 300 neighborhood locations annually and also plans to target the insurance-replacement market. This is a key area for competitor Enterprise, where the insurance company pays the cost of the rental while a car is being repaired.

The rising competitor

Avis Budget Group Inc. (NASDAQ:CAR) rents cars under the “Avis” and “Budget” brands. The company also operates local and one-way truck rentals under its Budget brand with approximately 27,000 trucks.

In the first quarter of this year, revenue increased 4% to $1.7 billion. This was the eleventh consecutive quarter of year-over-year revenue growth. In North America, Avis Budget Group Inc. (NASDAQ:CAR) raised prices 4%. Off-airport business grew 7%, and this is a segment that Avis wants to target. Europe remained weak for the company and as a result its EBITDA declined to $93 million.

Going forward, the growth for Avis will come from its just completed acquisition of Zipcar, the world’s leading car share network. Zipcar has 792,000 members, an increase of 12% from last year. Avis has been actively integrating Zipcar into its Avis network and expects $50 million to $70 million in synergies within two years. The plan is to expand Zipcar globally under the Avis and Budget framework. Avis is expanding Zipcar to more airports and will have equipped 1,000 cars from the Avis and Budget fleets with Zipcar’s technology by the end of this summer.

The leading equipment rental company

United Rentals, Inc. (NYSE:URI) is the largest rental equipment company in the world. The company has over 830 rental locations in the U.S. and Canada. United Rentals has 13% of the North American market for construction and industrial equipment rentals.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!