Invest in rental car inventory

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With more than half of the U.S. population fully vaccinated against COVID-19, demand for vacation travel is accelerating. Despite the spread of the delta variant, the daily passenger volume at US airports sometimes exceeded 2 million last summer for the first time since the pandemic began in early 2020. That whole flight has resulted in a growing demand for rental cars – and, in many cases, a shortage of rental cars.

The return of air travel is great news for rental car companies, but should you invest in rental car inventory? Budget Opinion Group (NASDAQ: CAR) is the only car rental company listed on a major stock exchange, and Hertz Global holdings (NASDAQ: HTZZ) recently managed to come out of bankruptcy. Let’s take a closer look at these two car rental companies.

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1. Budget Opinion Group

Avis operates the Avis and Budget car rental brands, with more than 10,000 rental locations worldwide. The company also owns the Zipcar carsharing network, which has more than one million members.

Due to the pandemic, Avis revenue in 2020 fell 41% year on year to $ 5.4 billion, and the company recorded a net loss of nearly $ 700 million last year. Avis revenue for the first quarter of 2021 was down 22% year-over-year, but returned to year-over-year growth in the second quarter as it began to grow. overcome the effects of COVID-19 lockdowns.

Avis is a more agile company emerging from the pandemic. In 2020, the car rental company cut costs by $ 2.5 billion. She now has over $ 886 million in liquid assets on her balance sheet, is once again a beneficiary, and is paying off her debt.

Avis’ performance is expected to improve as travel demand continues to increase. Despite this, the company could be negatively affected by the global semiconductor shortage, which is affecting automakers and creating uncertainty over the supply of rental cars.

Nonetheless, Avis turned into a meme stock, which more than doubled in value in early November after the firm’s strong Q3 2021 results update and a short squeeze. The share price has moderated, but retail investors are bullish on the company’s outlook as travel continues to slowly rebound.

2. Hertz Global Holdings

Hertz (with its subsidiaries Thrifty Car Rental and Dollar Rent A Car) is faring even worse than Avis during the pandemic. The company’s year-over-year revenue plunged 46% in 2020 and declined 33% year-over-year in the first quarter of 2021. In 2020, Hertz paid $ 608 million interest on its debt and generated a net loss of $ 1.7 billion.

When Hertz filed for bankruptcy in May 2020, it seemed obvious that the company’s shares would lose all value. Hertz was saddled with billions of dollars in debt which, in the event of bankruptcy, must be paid off in full before common shareholders can recover any value.

But Hertz has since agreed to a bankruptcy plan, and he escaped the financial niche in July 2021. The reorganized Hertz will get rid of around $ 5 billion in debt and have liquid assets worth around $ 2 billion. , $ 2 billion. In addition, the company is back in growth mode from the third quarter of 2021 and has started to generate healthy profit again on both unadjusted net income and on an adjusted EBITDA basis.

In addition, Hertz recently placed an initial order for 100,000 You’re heres (NASDAQ: TSLA) and expand its electric vehicle (EV) charging infrastructure to support the order. Hertz plans to make up to 50,000 electric vehicles available Uber (NYSE: UBER) drivers for hire by 2023. Clearly, Hertz intends to be part of a mobility future that offers flexible and renewable energy-based transport.

Investors who buy the stock now are doing so because they believe the new Hertz is well positioned to thrive. However, investors in Hertz shares should be aware that there are risks associated with this car rental company – as well as risks inherent in Avis – as the car rental industry continues to manage the effects of the pandemic. of COVID-19.

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