Why Avis Budget Group stock increased 10% today


What happened

Shares of the incumbent vehicle rental operator Budget Opinion Group (NASDAQ: CAR) zoomed into the speeding lane on Thursday, accelerating nearly 10% higher. This was due to a significant change in a recommendation from a leading bank.

So what

Thursday morning, Bank of America Securities analyst John Murphy increased his recommendation to buy the stock from the previous neutral. In doing so, he also pushed the gas pedal on his price target, which is now $ 125 per share, down from $ 90. At the new level, the stock now has upside potential of almost 27%, even after today’s big gain.

Image source: Getty Images.

Avis stock has collapsed in recent times, as demand for rental vehicles has increased dramatically as an increasingly vaccinated population longs to break home isolation for some trips elsewhere (or at least one trip). in a decent car more locally). On top of that, disruptions in the supply chain have reduced the production of new vehicles. This drives up rental prices.

Murphy believes that dynamic isn’t going away anytime soon. “A lot of the macroeconomic factors behind the company’s ‘upsurges’ in 2021 are likely to persist until 2022,” he wrote in his latest Avis research note.

“Combined with the ongoing execution by Avis, this is expected to result in upward revisions through 2022 and beyond estimates that the title does not seem to like,” added Murphy.

Now what

Murphy’s argument is certainly compelling and is compounded by the fact that Avis is basically the only viable publicly traded car rental company.

On the contrary, this new analysis underestimates the case, as supply chain problems tend to persist. Once the numbers for coronavirus cases and deaths start to drop significantly, demand is expected to become proportionately stronger.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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