By Laura Forman Sept. 27, 2019 5:30 am ET Investors have been treating rental-car stocks like broken down jalopies with little life left. But this fails to account for the upgrades these companies have made to adjust to today’s ride-sharing world. There could be a bargain here for savvy buyers.
Activist investors for some time have been the largest shareholders of both Hertz and Avis stock. Even billionaire Carl Icahn has been burned. In 2014, Mr. Icahn saw Hertz as an “undervalued” stock battling accounting and operation issues. Over the ensuing five years, Hertz stock has lost about 85% of its value. Avis hasn’t fared much better, falling roughly 60% over the same period.
Hertz said this business grew 73% from a year earlier in the second quarter and is on track to generate roughly $400 million in revenue in 2019. Granted, that’s only a small slice of the $9.8 billion in total revenue that analysts expect Hertz to pull in this year, but sustained growth in this business could make a big difference to the company.
Valuation looks attractive for both companies. Hertz reported significant improvement in operating margins in the second quarter from a year earlier. Barclays figures margins could continue to expand, in part due to ride-hailing partnerships and longer-term rentals. Despite this, Hertz is trading at just 0.19 times forward sales estimates, or roughly half its average valuation over the last five years. Avis, meanwhile, is trading at 0.