Avis Budget Stock Upgraded on Strong Car Sales

Avis Budget shares were upgraded to overweight at Morgan Stanley, which lifted its price target nearly 50%.
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Avis Budget Group  (CAR) - Get Report shares jumped Thursday after analysts at Morgan Stanley upgraded the rental-car company to overweight from equal-weight and raised their price target nearly 50% to $37 from $25. 

At last check Avis shares were up 17% to $26.35. The stock is trading at about half its 52-week high, set in mid-February. And it has quadrupled from the 52-week low of $6.35 set in mid-March. 

Analyst Adam Jonas is bullish on the Parsippany, N.J., company as new data show that new- and used-car sales during the coronavirus pandemic have held out better than expected.

Used-car sales figures are important for Avis following the bankruptcy of Hertz HTZ, its rival and the biggest player in the car-rental space. That's because the collapsing used-car market devalued its fleet of used vehicles and helped push the company to file for Chapter 11. 

"Consumers have been buying new and used cars during the pandemic. Sales have been much more resilient than forecast. This has been driven by stimulus packages to consumers, credit availability and consumers reprioritizing car purchases vs. other forms of spending," he said. 

Jonas now expects used-car prices to fall by 5% in 2020, half the prior forecast. Used-car prices could even rise slightly in 2021 based on current trends. 

The new price target represents 65% potential upside from Avis Budget's Wednesday closing price. 

The Manheim Mid-Month June used-car-pricing index reached 146.1, a 4% increase from a year ago and a 6.6% increase sequentially. 

If the mid-month value holds for the full month, the index will hit an all-time high, according to Jonas.