The potential pricing recovery, which would likely be more of a spur for Avis than Hertz, could last another six quarters. Beyond that, the Street doesn’t see a multi-year pricing rebound for the rentals, especially given regulatory risks.
So which one is better: Avis or Hertz?
Although Avis Budget Group Inc. (NASDAQ:CAR) is likely to be the better beneficiary in an increasing price environment than Hertz Global Holdings, Inc. (NYSE:HTZ) and offers a stronger cash flow story (both points have fueled Avis’s outperformance over Hertz), Hertz is preferred over Avis due to:
1. The Dollar Thrifty integration into Hertz is still highly under-appreciated by investors
2. Although Avis is beginning to ramp up its “direct to consumer” vehicle resale mix, Hertz offers significantly better exposure
3. The growth opportunity that Avis Budget Group Inc. (NASDAQ:CAR) has via Zipcar has been amazing, but Hertz offers better growth initiatives than Avis via off-airport initiatives, Donlen, Hertz On-Demand, and Hertz Equipment Rental Corp (HERC)
4. Hertz’s growth initiatives are expected to be enhanced by its mobility-enhancing technology portfolio
Avis’ competitor
Avis Budget Group Inc. (NASDAQ:CAR) has had a tough time from its competitor U-Haul, the largest do-it-yourself (DIY) equipment rental company in North America. U-Haul is a subsidiary of AMERCO (NASDAQ:UHAL). In addition to operating the lowest-cost truck rental company in the industry, AMERCO (NASDAQ:UHAL) also owns valuable real estate.
However, it is U-Haul that we are interested in. U-Haul rents trucks and trailers, sells moving and packaging supplies, and also refills propane tanks. The company has the largest network of dealers and the largest fleet of rental trucks and trailers in North America — by a wide margin. This gives it a tremendous cost advantage by way of economies of scale.
U-Haul maintains a 50% share of the DIY equipment-rental market, which is way higher than the next closest market share of 10% by Avis Budget Group Inc. (NASDAQ:CAR). It is interesting to note that truck rental accounts for only 6% of Avis’ performance and hence, Avis is gradually winding down this business, which will help U-Haul to increase its market share.
Final word
Hertz Global Holdings, Inc. (NYSE:HTZ) definitely presents a better growth story given its benefits from Dollar Thrifty’s acquisition, revenue from other initiatives like HERC and Donlen and mobility-enhancing technology portfolio.
Zain Abbas has no position in any stocks mentioned. The Motley Fool owns shares of Hertz Global Holdings, Inc. (NYSE:HTZ).
The article Which One Is Better: Hertz or Avis? originally appeared on Fool.com.
Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
