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Can High Rental Car Demand Post Harvey Benefit These Stocks?

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Hurricane Harvey is one of the most devastating storms to hit the United States since Wilma in 2005. The extent of the damage seen in the country is huge. As the saying goes “one man’s loss is another man’s gain,” even the worst of certain situations could bring some positives for somebody.

This catastrophe has led to the rise in demand for rental cars in the region since life started getting back to normal. According to a report by Cox Automotive, Houston, being the nation's fourth-largest city, is majorly dependent on cars, with 94.4% of households owning a car. An earlier forecast suggested that the city lost around 500,000 vehicles, more than were destroyed in New York’s Hurricane Sandy which saw a loss of 250,000 cars. This disaster has left many residents of the water-logged metro area dependent on rental car services to reach their offices or head out of the region altogether until their homes are repaired.

Accelerating demand for cars in the region has forced rental car service companies to charge a higher price for their services. Let’s have a look at two major car rentals in the region, which are expected to see a positive turn in their top line owing to the crisis in the region:

Avis Budget Group, Inc. (CAR - Free Report) provides vehicle rental services through a network of approximately 10,000 car and truck rental locations in the United States, Canada, Australia, New Zealand, Latin America, the Caribbean, and parts of Asia. About 71.5% of total first-quarter revenues of the company was from its businesses across North America, South America and the Caribbean, including operations at Budget Truck Rental.

Avis Budget reported first-quarter 2017 results wherein the company reported wider losses than the expected estimates. Owing to its disappointing performance, the company carries a Zacks Rank #4 (Sell). However, this is expected to change in the near future, as we expect it to see an increase in demand for its rental services in the hurricane affected areas.  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The company has significantly outperformed the industry in the last month, with an average return of 13.5% compared with 2.6% gain for the latter.

Hertz Global Holdings, Inc. (HTZ - Free Report) operates a car rental business, primarily across North America, Europe, Latin America, Asia, Australia, Africa, the Middle East and New Zealand.

Hertz is currently trying to move more cars into the region. The company is sending around 15,000 cars to Houston from various other regions. The company currently carries a Zacks Rank #5 (Strong Sell). Owing to the given situation, we expect the company to see an improvement in its business in the days to come.

Majority of the rental-car shortage stems from brands reserving vehicles for Federal Emergency Management Agency personnel, insurance staff and clients and employees of corporate accounts who are currently getting priority in the storm’s aftermath. Maximum of the company’s locations across Southeast Texas remained open but disaster-relief personnel were being given priority.

The company has dramatically outperformed the industry in the last month, with an average return of 28% compared with 2.7% gain for the latter.

Moving Forward

Rental companies continue to raise rates in Houston since pulling cars out of other markets tighten the supply of vehicles and can increase costs.

The current adversity is likely to generate additional revenues for these rental car companies. As these stocks hog the limelight, investors can also expect to benefit with their healthy fundamentals.

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