Fade the Rally in Avis Stock & Buy Hertz's Instead?

Car rental stocks surged today after Hertz Global HTZ) reported a significant increase in website traffic as travelers look for alternatives to flying amid a TSA shortage that has led to unusually long airport security lines across the United States.

The ongoing federal funding lapse for the U.S. Department of Homeland Security (DHS) has led to TSA officers going without pay, driving many to quit or to call out sick.

Hertz shares spiked 9% on Thursday, pulling Avis Budget Group's CAR) stock up in the process, which soared 13%.

Fade the Rally in Avis Stock for Hertz's?

While Avis stock has rebounded sharply following a post-earnings selloff last month, its Q4 report showed a much larger-than-expected loss of -$6.53 per share compared to Hertz’s -$0.63, driven mainly by massive write-downs on its U.S. electric-vehicle fleet and weaker rental-car demand coming out of the duller winter season for car rentals.

Fading the rally in Avis stock, and buying Hertz shares could be a viable scenario, although both are likely to benefit from increased bookings driven by obscure airport check-in lines. This redirection is also appelaing as the warmer and peak travel seasons are approaching, but Avis stock trades over $130 compered to Hertz at just $4 a share.

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Hertz’s More Appealing Sales Expansion

There’s no argument that Avis has been the superior car rental platform, but Hertz’s sales expansion is starting to outpace its rival after emerging from bankruptcy in 2020 and implementing a successful restructuring.

Hertz’s annual sales are expected to increase over 4% in FY26 and FY27, with projections edging toward $9 billion.

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Avis, on the other hand, still has the more robust top line, but its annual sales are only projected to increase 1% in FY26 and roughly 2% in FY27, with projections edging toward $12 billion.

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Avis’s Concerning EPS Revision Trend

What may make it an ideal time to take profits or cut losses in Avis stock is that FY26 EPS revisions have fallen more than 60% over the last 60 days from estimates of $9.86 to $3.64. While a sharp rebound is expected in Avis’s bottom line next year, FY27 EPS estimates have dropped 14% in the last two months from $9.45 to $8.08.

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Hertz’s FY26 EPS revisions have dropped from estimates of -$0.39 to -$0.58 in the last 60 days, but FY27 EPS estimates have jumped from $0.22 to $0.34.

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Conclusion & Final Thoughts

Investors looking for the cyclical pop that car rental operators can tap into, particularly as the warmer peak travel seasons approach, may find Hertz more attractive at the moment, especially in terms of risk-to-reward.

A potential improvement in EPS revisions stemming from news that rental-car companies are seeing increased demand amid TSA headwinds could lead to a buy rating for Hertz stock, which currently lands a Zacks Rank #3 (Hold).

Meanwhile, the steep drop in Avis’s EPS revisions lands its stock a Zacks Rank #5 (Strong Sell). Substantial recovery in earnings, along with a more encouraging sales outlook, may certainly be needed to unlock further upside in Avis’s stock and would alleviate the short-term risk that likely lies ahead if this doesn’t occur.

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Avis Budget Group, Inc. (CAR): Free Stock Analysis Report

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This article originally published on Zacks Investment Research (zacks.com).

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