Hertz and Avis stocks surge amid short squeeze pressure

Hertz Global Holdings and Avis Budget Group stocks surged 10.5% and 8.3% respectively in Thursday's trading, continuing their strong year-to-date gains. Deutsche Bank analyst Chris Woronka attributed the rally to high short interest levels in the companies, with many short sellers likely covering their positions.

Hertz Global Holdings (NASDAQ:HTZ) and Avis Budget Group (NASDAQ:CAR) stocks surged 10.5% and 8.3% respectively in Thursday's trading, continuing their strong year-to-date gains. Deutsche Bank analyst Chris Woronka attributed the rally to high short interest levels in the companies, with many short sellers likely covering their positions [4].

The recent surge in both stocks is part of a broader trend that has seen Hertz and Avis both experience significant rallies since mid-April, driven largely by the involvement of billionaire investor Bill Ackman. Ackman's 20% stake in Hertz has significantly boosted the stock's value, despite ongoing operational challenges [2]. Similarly, Avis Budget Group has seen its stock price soar to a 52-week high, delivering an 82.41% gain over the past year [3].

Both companies have been actively enhancing their operational efficiency by selling old fleets at high residual prices and purchasing young, cost-efficient fleets. This strategy has led to increased fleet utilization and vehicle disposition proceeds at all-time highs. For example, Avis gained about $2.2 billion in Q1 2023, which increased to $3 billion in Q1 2025, resulting in a 3.5 percentage point increase in fleet utilization to 69.4% [1].

However, both companies face significant challenges. Their balance sheets remain highly leveraged, and revenues continue to decline. Avis' income statement showed a 5% decline in revenue in Q1 2025, with a 15% increase in total expenses, resulting in a 377% increase in operating loss. Hertz's revenue decreased by 13% in Q1 2025, with a 24% increase in operating loss. Both companies are raising non-vehicle debt to repay vehicle-related debt, which could increase their interest expenses over time [1].

Despite these challenges, Avis appears to be in a better position than Hertz. Avis has a more focused strategy on reducing interest expenses, which could further increase operating cash flow. Hertz's interest expenses are at an all-time high since 2020, which could negatively impact its bottom-line performance. Additionally, Ackman's involvement in Hertz opens doors to potential value-accretive partnerships, such as with Uber, which could increase fleet utilization and profitability [1].

In conclusion, while both Avis and Hertz are executing similar strategies to enhance operational efficiency, Avis appears to be in a better position due to its focus on reducing interest expenses and maintaining lower total expenses. However, both companies face significant challenges, and the market remains bearish on Avis, with short interest above 18%. Investors should carefully consider these factors when evaluating the potential pair trade opportunity between Avis and Hertz.

References:
[1] https://seekingalpha.com/article/4800251-avis-budget-group-and-hertz-global-the-ackman-rally-gave-us-a-pair-trade
[2] https://www.fxleaders.com/news/2025/07/10/hertz-defies-poor-earnings-as-htz-stock-surges-12/
[3] https://ih.advfn.com/market-news/article/12448/avis-budget-group-stock-hits-52-week-high-at-190-25-amid-strong-market-momentum
[4] https://seekingalpha.com/news/4466573-car-rental-rally-hertz-and-avis-soar-again-as-shorts-get-pressured