Automobile rental giant
Avis Budget NYSE: CAR stock has made an amazing
recovery off the pandemic lows of $6.35 March 18, 2020 to highs of $90.29 on May 3, 2021. The stocks transformed from an
epicenter stock in the travel industry to a re-opening play as
travel and leisure recovers with the acceleration of
COVID-19 vaccinations. The bankruptcy of key competitor Hertz Global also bolstered shares of Avis Budget as a reward for being the “last man standing” among the publicly listed automobile rental players. The unprecedented spike in demand for used cars amid the
global chip shortage has also given Hertz a lifeline to emerge from bankruptcy. This news of a $6 billion funding proposal for reviving Hertz from bankruptcy recently sent Avis shares plunging. Markets tend to overreact and overshoot at the extremes as evidenced by shares of Avis Budget. As economies put the pandemic behind them, the return to normal sentiment also appears to have overshot to the upside.
Despite trimming bottom line losses dramatically, Avis Budget is still bleeding money, yet shares trade higher than when it was making big profits. Prudent investors that reaped the gains from the surge to all-time highs may want to consider trimming down some exposure from a position of strength into opportunistic exit levels to protect gains as the migrations from growth to value starts to fade.
Q1 FY2021 Earnings Release
On May 3, 2021, Avis Budget released its fiscal first-quarter 2021 results for the quarter ending March 2021. The Company reported an earnings-per-share (EPS) loss of (-$0.46) versus consensus analyst estimates for (-$2.49), a $2.03 beat. Revenues fell (-21.7%) year-over-year (YoY) to $1.37 billion beating analyst estimates for $1.24 billion. The Company achieved Adjusted EBITDA of $47 million in Q1 2021, through “cost discipline and double-digit growth in revenue per day”. The Company noted the increase in demand during the back half of the quarter with revenue per day increasing 12% YoY. The Company ended the quarter with $1.2 billion in liquidity and an additional $4.8 billion in fleet funding capacity with no meaningful debt maturities until 2023. “Our first-quarter results show our continued recovery through cost discipline and fleet optimization driving higher utilization, while reducing global per unit fleet costs.”, as per Avis Budget CEO, Joe Ferraro. He continued, “The Americas achieved its best first-quarter Adjusted EBITDA margin on one its lowest first-quarter revenue bases and continues to prove that our cost-saving initiatives are expected to continue to deliver strong results. These accomplishments are a great way to kick off the 75th anniversary of our Avis Brand.”
Hertz Rises From the Dead
On May 12, 2021, vehicle rental giant Hertz Global announced they have selected the $6 billion proposals from Knighthead, Certares, and Apollo (KHCA Group) to fund its exit from Chapter 11. The plan will be funded through direct common stock investment of $2.781 billion, the issuance of $1.5 billion in new preferred stock to Apollo, and a full backstopped offering to existing shareholders for the purchase of $1.635 billion in additional common stock to pay in full all claims in the Chapter 11 cases. The surge in used car pricing coupled with the market recovery has completely reversed sentiment in the perfect storm-like fashion that crushed the Company last year.
Time to Ring the Register
Avis Budget’s key competitor rising from the dead implies more competitive pressure on the Company. Despite travel recovering, the “new normal” may not see a recovery back to pre-COVID levels again. The pandemic awakened Companies and consumers to the convenience of remote work and engagements. Couple that with the lack of profits despite the so-called Adjusted EBITDA figures makes the stock very optimistically overvalued. Shares benefitted from short-sellers getting squeezed beyond the realm of reality. Investors that managed to reap the gains may want to consider ringing the register while the sentiment is still bullish.
Opportunistic Exit Levels
Using the rifle charts on the weekly and daily time frames enables a more precision view of the price action for CAR stock to determine exit levels. The weekly rifle chart made a double top at the $98.45 Fibonacci (fib) level. The weekly stochastic peaked and crossed down at the 95 band. Keep in mind that selling accelerates when the 80-band breaks. The weekly formed a market structure high (MSH) sell trigger on a breakdown under $74.91, which acts as the stop-loss level. The daily rifle chart indicates the breakdown that bottomed out at the weekly MSH trigger and coiled back to the $87.32 fib level. If the daily stochastic can cross back up, then there are upside fibs towards the daily upper Bollinger Bands (BBs) to trim exposure. However, if the daily 5-period moving average (MA) is breaks down, then the stop loss triggers come into play. The opportunistic exit levels range from the $77.47 fib up to the $98.45 fib level. If the weekly MSH trigger breakdowns down under $74.91, then stops should be implemented in the $74.90 to $70.24 fib level to protect profits and trim down to minimal or zero exposure.
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