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Deutsche Bank Cuts Targets On Avis, Hertz Ahead Of Q1 Results

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Deutsche Bank Cuts Targets On Avis, Hertz Ahead Of Q1 Results

Deutsche Bank said car rental operators Avis Budget Group Inc. (NASDAQ: CAR) and Hertz Global Holdings Inc (NYSE: HTZ) may report first-quarter results below consensus on weak pricing trends.

A Look At Avis And Hertz

Avis Budget is expected to report its quarterly numbers on May 3 after market close. Street expects a loss of $0.07 and revenue of $1.88 billion. Hertz Global Holdings will release its first-quarter results on May 9 and consensus expectation calls for earnings of $0.01 a share on revenue of $2.39 billion. Deutsche Bank sees a loss of $0.14 a share for Avis Budget and $0.03 loss for Hertz Global.

"While y/y pricing growth has been negative for HTZ for six consecutive quarters (through 4Q15–1Q16 should mark the seventh consecutive quarter) and has been negative for CAR for four consecutive quarters (also through 4Q15, with 1Q16 almost certain to the fifth consecutive)," analyst Chris Woronka wrote in a note.

Related Link: Car Rental Outlook Getting Better, MKM Says

Although weaker-than-expected results shouldn't surprise the market, the analyst noted that the stocks could encounter selling pressure. The key will be whether the companies maintain their 2016 outlook. Avis Budget sees 2016 EPS at $2.70–$3.30, while Hertz expects earnings of $0.95–$1.10 a share for the full year.

Woronka, who maintains his Buy rating on both the stocks, cut the price target on Avis and Hertz to $44 from $46 and $16 from $18, respectively.

However, the analyst said the pricing could improve and declines will be in the low-single-digit range in the second quarter and potentially flat or better in the third/fourth quarter.

"While we expect quite poor U.S. pricing to be reported in 1Q (we forecast -6.2 percent for both HTZ and CAR), our opinion is that 1Q is likely to represent the low water mark for the year. Comps ease more meaningfully (2Q for CAR, 3Q for HTZ) and if our call on industry de-fleeting proves to be correct," Woronka highlighted.

Deutsche Bank Versus The Street

Moreover, the analyst believes that Street expectations for pricing are "probably at or near a nadir," on the back of a "grim" first quarter, which indicates that any stabilization in pricing could improve the sentiment.

On his call for industry de-fleeting, the analyst said that stepped-up dispositions are the only way for the industry to stem pricing erosion.

"The question, of course, is will all three industry players come to the same conclusion? We're of the view that this year, they will—clearly that was not true in each of the past few years," Woronka continued.

At Time Of Writing...

  • Hertz was seen down 3.71 percent on the day at $8.70.
  • Avis was seen down 3.45 percent at $23.78.

Latest Ratings for CAR

DateFirmActionFromTo
Feb 2020Northcoast ResearchDowngradesBuyNeutral
Oct 2019Deutsche BankDowngradesBuyHold
Feb 2019Goldman SachsUpgradesSellBuy

View More Analyst Ratings for CAR
View the Latest Analyst Ratings

Posted-In: Analyst Color Earnings Long Ideas News Guidance Price Target Previews Reiteration

 

Related Articles (CAR + HTZ)

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