Additionally, there are number of catalysts peculiar to Hertz Global Holdings (HTZ) and Avis Budget Group (CAR) that makes an investment in these names even more interesting.
Up until a few years ago, Ford owned Hertz, Chrysler owned Dollar Thrifty, Avis was owned by Cendant and Budget was owned by Transamerica.
Both Avis and Budget were spun off to private equity groups, as was Hertz. Since they became independent they have been very busy on the acquisition side.
Hertz was able to buy Dollar Thrifty Automotive Group for $2.3 billion after a long process that included a major battle with Avis over the property. Meanwhile, Avis had already acquired Budget while it was still owned by Cendant.
The bottom line is that we now have coherent ownership and focused management and to some degree a duopoly (not counting Enterprise which is privately held).
This should enable these companies to experience pricing power and margin expansion. Slim margins have been an issue for the rental agencies over the years but they should finally be able to expand them going forward.
In fact, Avis has been able to raise its prices a total of six times year-to-date. Hertz was also able raise rates by similar amounts and volumes for both companies were up as well.
Both companies have continued to acquire additional related businesses. Avis bought out car sharing pioneer Zipcar in March and has begun expanding that franchise into more cities in North America.
Meanwhile, Hertz continues to digest their recent purchase of Dollar Thrifty and expanded their competition to Zipcar with hourly rentals of their own which they are calling the 24/7 platform.
So far Hertz is showing better results. The company reported a first-quarter profit of $18 million compared with a loss over the same quarter the previous year of $56.3 million (figures in U.S. dollars). Revenue jumped by 24%, to $2.4 billion.
Avis reported that quarterly earnings declined 33% from the prior year quarter although revenue increased by 4% to $1.69 billion. Avis revised its outlook to reflect the acquisition of Zipcar and forecast revenue increases year-over-year of between 6% and 9%.
Both stocks tend to trade in lockstep. I consider both as buys but based on the recent results I give a slight edge to Hertz, even though on a p/e basis it looks to be more expensive.
Both stocks are up over 40% this year. So if you want to hedge your bets, I recommend taking a half position now. You can add more later when and if we eventually get the long predicted market correction.
No comments:
Post a Comment