Avis Budget Group, Inc. (CAR) and Hertz Global Holdings, Inc. (HTZ) are two prominent rental and leasing services companies. CAR provides luxury cars, specialty-use vehicles, light commercial vehicles and truck rentals, car sharing, and ancillary services to businesses and consumers. It also offers optional insurance products and coverages, fuel service options, roadside assistance services, and an online portal for corporate travel. HTZ provides vehicle rental services under the Hertz, Dollar, and Thrifty brands from company-owned, licensee, and franchisee locations internationally. It also sells vehicles and operates the Firefly vehicle rental brand and Hertz 24/7 car sharing business in international markets.

The pandemic-imposed lockdowns and travel restrictions crushed the demand in the car rental market last year, as U.S. car rental industry revenue declined 27.4% year-over-year in 2020. However, the industry rapidly recovered this year, owing to a strong vaccination drive, an increase in new car prices, and a growing interest in sustainability. Rising energy prices and growing interest in electric vehicles are incentivizing car rental companies to add more battery-powered vehicles to their fleets, which, in turn, fosters the industry’s long-term growth prospects. The global car rental market is expected to grow at 4.6% CAGR and reach $141.17 billion by 2028. So, both CAR and HTZ should benefit in the long run.

CAR is a winner with 181.6% gains versus HTZ’s 56.6% returns in terms of their past three months’ performance. But which of these stocks is a better pick now? Let us find out.

Latest Developments

On April 21, 2021, car-sharing company and CAR subsidiary, Zipcar, partnered with the City of Philadelphia and the Philadelphia Parking Authority to add nearly 50 Zipcar vehicles to convenient, designated on-street parking spots across the city. By reducing reliance on personal vehicles and increasing access to equitable, affordable, and sustainable forms of transportation, CAR is looking forward to supporting the new Philadelphia Transit Plan goals. 

On October 27, 2021, HTZ and Carvana, an online used car retailer, announced a partnership that enables HTZ to utilize Carvana’s online transaction technology and logistics network to expand vehicle disposition channels. This will enable HTZ to combine its global fleet expertise with new technology and innovations to chart a dynamic, new course for the future of travel, mobility, and the auto industry.

Recent Financial Results

CAR’s revenues for the third quarter, ended September 30, 2021, increased 95.6% year-over-year to $3 billion. The company’s adjusted pre-tax income came in at $954 million, indicating an 863.6% rise from the year-ago period. CAR’s adjusted net income came in at $693 million, indicating a 777.2% rise from the year-ago period. Its adjusted EPS increased 850.4% year-over-year to $10.74. As of September 30, 2021, the company had $886 million in cash and cash equivalents.

For the fiscal third quarter ended September 30, 2021, HTZ’s total revenues increased 75.6% year-over-year to $2.23 billion. The company’s adjusted pre-tax income came in at $772 million, compared to a loss of $90 million in the prior-year period. HTZ’s adjusted net income came in at $587 million for the quarter versus a $68 million loss in the year-ago period. Its adjusted EPS came in at $1.20 versus a $0.44 loss per share in the prior-year period. The company had $1.52 billion in cash as of October 30, 2021.

Past and Expected Financial Performance

CAR’s EBITDA has grown at a CAGR of 26.4% over the past three years. EPS is expected to increase 457.3% year-over-year in the current year and decline 12.1% next year. Analysts expect CAR’s revenue to grow 67.1% year-over-year in the current year and 10.5% next year.

In comparison, HTZ’s EBITDA increased at a CAGR of 36.8% over the past three years. Analysts expect HTZ’s EPS to increase 152.5% year-over-year in the current year but decline 39.8% next year. The stock’s revenue is expected to increase 38.4% year-over-year in the current year and 19.2% next year.  

Valuation

In terms of forward EV/Sales, CAR is currently trading at 3.31x, which is 16.6% higher than HTZ’s 2.84x. In terms of forward EV/EBITDA, HTZ’s 9.90x compares with CAR’s 13.38x.

Profitability

CAR’s trailing-12-month revenue is almost 1.2 times HTZ’s. CAR is also more profitable, with a 24.5% EBITDA margin versus HTZ’s 23.2%.

Furthermore, CAR’s ROA and ROTC of 5.5% and 7.1%, compare favorably with HTZ’s 4.3% and 5.3%, respectively.

POWR Ratings

Both HTZ and CAR have an overall C grade, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree. 

Both CAR and HTZ have a C grade for Momentum, owing to its mixed price performance over the past year. CAR has lost 3.9% over the past month, while HTZ lost 1.9% during the period.

Also, both the stocks have been graded a C for Value, which is in sync with its slightly higher-than-industry valuation ratios. CAR has a forward EV/Sales ratio of 3.31, 62.1% higher than the industry average of 2.04x. HTZ’s 2.84 forward EV/Sales multiple is 39.2% higher than the industry average of 2.04x.

Of the 26 stocks in the B-rated Auto Dealers & Rentals industry, HTZ is ranked #11, while CAR is ranked #19.

Beyond what we have stated above, our POWR Ratings system has also rated HTZ and CAR for Growth, Stability, Sentiment, and Quality. Get all HTZ ratings here. Also, click here to see the additional POWR Ratings for CAR.

The Winner

An ongoing shortage of rental cars amid surging demand and increasing sustainability concerns might limit CAR and HTZ’s growth prospects in the near term. So, we think it could be wise to wait for better entry opportunities in these stocks.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Auto Dealers & Rentals industry.

CAR shares were trading at $237.80 per share on Monday afternoon, down $6.18 (-2.53%). Year-to-date, CAR has gained 537.53%, versus a 26.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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