The Ratings Game: Avis stock zooms to highest in two months after Goldman upgrade

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Avis Budget Group Inc. stock rose more than 9% Monday after analysts at Goldman Sachs upgraded it to buy from sell, saying valuation looks attractive as most of the headwinds facing the car rental company and the industry are priced in.

Avis CAR, +9.00%  shares were on track for their highest close since Dec. 6 and their largest one-day percentage increase since Nov. 7. Shares of competitor Hertz Global Holdings Inc. HTZ, +9.02%  also got a lift, north of 9% as well and on pace for their highest close in more than three weeks.

Between the two companies, Avis is viewed “as the better operator and should be able to improve results (Ebitda and free cash flow) through cost optimization strategies” this year and beyond, analysts led by David Tamberrino wrote in a note.

The industry still faces “challenges,” but pricing and volume are holding up well and residual value risk from the fleet cars they sell after their life span as rental vehicles “may be skewed to the upside as auto OEMs have shown discipline recently on incentives,” the Goldman analysts said.

The analysts kept their sell rating on Hertz shares.

Avis is expected to report fourth-quarter earnings on Feb. 20, while Hertz is scheduled to report fourth-quarter results on Feb. 27. The Goldman analysts see Avis beating Wall Street quarterly expectations, while Hertz is seen as falling short on higher general expenses and interest expenses.

Analysts polled by FactSet expect Avis to report adjusted fourth-quarter earnings of 38 cents a share on sales of $2.05 billion. That would compare with adjusted earnings of 45 cents a share on sales of $2.02 billion in the year-ago quarter.

The same analysts forecast Hertz to report an adjusted loss of 94 cents a share on sales of $2.15 billion in the fourth quarter. That would compare with a loss of 77 cents a share on sales of $2.09 billion in the year-ago period.

Shares of Avis have tanked 32% in the last 12 months, while Hertz shares have fallen 14% in the same period. That contrasts with gains of 3.5% for the S&P 500 index SPX, +0.05%  in the same period.

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