Avis Rally Opens Record Gap Between Share Price and Analyst Targets

(Bloomberg) — The crippling supply problem of the auto industry has turned out to be a boon for rental car companies.

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A breakneck rally in the shares of Avis Budget Group Inc. over the past month has driven the stock to record its biggest gain over Wall Street analysts’ average price target since at least 2006.

The shares have risen 245% this year, dwarfing the S&P 500 Index’s 16% advance. The pace of the rally has quickened over the past month, with a 39% jump, even as the broader market retreated 3.8%.

The rental car industry has found itself in an advantageous position as the production of new cars has remained tight amid a global supply-chain shortage. At the same time, demand for personal vehicles surged with the economy gradually reopening and travel resuming after prolonged pandemic-related shutdowns. Rental car prices climbed sharply in the second and third quarters of the year, and are expected to stay elevated in the final months of the year as well.

Yet investors looking to capitalize on this opportunity have few options other than Avis, which is the only publicly traded car-rental company apart from Hertz Global Holdings Inc. — the struggling peer that is now trying to turn itself around after emerging from bankruptcy earlier this year.

As the chart shows, the spread between analysts’ average price target and Avis’s share price is now the widest since 2006, when Bloomberg began compiling data.

Some of that may have led to an overly optimistic valuation, prompting Morgan Stanley analysts to strike a cautious note earlier on Wednesday. Avis’s shares price now suggests investors are expecting earnings to remain “stronger for longer,” and that analysts’ consensus estimates for 2021 may be too low, Morgan Stanley’s Billy Kovanis and Adam Jonas said.

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