Which One Is Better: Hertz Global Holdings, Inc. (HTZ) or Avis Budget Group Inc. (CAR)?

Page 1 of 2

Investors have recently shown great interest in the car rental space. In fact, interest first began to pick up back in December, shortly after Hertz Global Holdings, Inc. (NYSE:HTZ)’s acquisition of Dollar Thrifty Automotive closed. Since then, the market has seen both short-term and long-term investors express interest. Naturally, one might wonder what inning we’re in on the car rental trade, especially given the fact that both Avis Budget Group Inc. (NASDAQ:CAR) and Hertz are up substantially since the start of the year (Avis +58%, Hertz Global Holdings, Inc. (NYSE:HTZ) +54%, and the S&P 500 +16% only). The car rental trade is still in the early-mid innings.

However, the more important question that needs to be answered is which is the best company in the space?

Hertz Global Holdings, Inc. (NYSE:HTZ)

Source of interest

Looking back, the initial spike in interest in the names was driven by a couple of factors:

1. The completion of the Hertz Global Holdings, Inc. (NYSE:HTZ)/Dollar Thrifty deal revived the investment thesis that the car rental companies could benefit from a consolidated industry and more rational industry, even if this notion was still a mere prospect, with the opportunity for oligopoly pricing. At the time, assumptions on U.S. pricing were largely conservative, and understandably so given the historical lack of visibility on pricing.

2. Once the Hertz/Dollar Thrifty deal was complete, rental investors now had, in addition to Avis Budget Group Inc. (NASDAQ:CAR), a second clean name to evaluate, which didn’t have any M&A/event-driven overhang, and which also offered significant market cap for investment (at the time of the deal closing, Hertz Global Holdings, Inc. (NYSE:HTZ) had a market cap of $6.2 billion). The number of new investors looking at the space has increased significantly.

A pricing recovery

The more recent wave of interest on the rental names reflects a greater acceptance that a pricing recovery is on its way, with an optimistic outlook re-affirmed by positive U.S. pricing results for both Hertz and Avis in 1Q (+5% for Hertz, +4% for Avis), even if 1Q was boosted by easy comps. Simply put, the view by investors around pricing is now a function of “when,” not “if” – a significant improvement over the outlook five months ago, when we saw limited pricing visibility.

Moreover, there is greater acceptance that the newly consolidated industry structure is increasingly rational, with all three participants (Avis, Hertz, Enterprise), all looking to maintain or grow profitability, as opposed to volume, ultimately strengthening the argument for oligopoly pricing. Interestingly enough, the interest in the space coincides with the continued normalization of used-car prices, even with rental risk auction pricing starting to post declines on a year-over-year basis.

Has this pricing recovery been factored in the stocks?

Although some of the U.S. pricing recovery has already been baked into both stocks, the rental story is still in the early-mid innings, especially for Hertz Global Holdings, Inc. (NYSE:HTZ). The key pricing development will be in the 3Q, when the big three industry players all have their fleets properly aligned for peak summer demand, and when opportunity exists for leisure pricing to further improve.

Moreover, there is potential for corporate pricing, which has been sluggish until now, to potentially rebound alongside leisure pricing, which has been the primary driver of recent pricing improvements. Indeed, Avis Budget Group Inc. (NASDAQ:CAR) has recently noted that it is looking to gear its corporate pricing agreements moreso around profitability over revenue.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

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!