Avis Budget Benefits From Improving Used Car Market, Morgan Stanley Says In Upgrade

Avis Budget Group Inc. CAR appears poised for share gains in an improving used car market, according to Morgan Stanley.

The Avis Budget Analyst

Adam Jonas upgraded Avis Budget from Equal-Weight to Overweight, while raising the price target from $25 to $37.

The Avis Budget Thesis

Consumers have bought both new and used cars during the pandemic, and auto sales have exhibited higher-than-anticipated resiliency, Jonas said in the Thursday upgrade note. (See his track record here.)

The better market trends have been driven by stimulus packages to consumers, credit availability and consumers re-prioritizing car purchases over other expenses, the analyst said.

That strength in new car sales has alleviated concerns over consumers indiscriminately selling off their vehicles, he said. 

“We now expect used car prices to only drop -5% in 2020, from -10% previously.”

The increase in the supply of cars will likely be gradual due to lower original equipment manufacturer production in the second quarter, Jonas said. 

Avis will take market share from Hertz Global Holdings Inc HTZ and other transportation mediums, like flights and trains, “as consumers use rental cars as alternatives for short-haul routes,” according to Morgan Stanley. 

CAR Price Action

Avis Budget Group shares were up 16.15% at $26.11 at the time of publication Thursday.

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Public domain photo via Wikimedia.