Morgan Stanley has issued a warning to investors about U.S. car rental stocks as it becomes increasingly cautious about their prospects leading into 2025. Analyst Adam Jonas noted that while travel trends for 2024 remain generally stable, investor attention has shifted towards pricing outlooks.
Jonas highlighted that with the diminishing impact of hurricanes from the third quarter and Enterprise's ongoing fleet updates to enhance airport competitiveness, market competition is intensifying. This could lead to increased pricing uncertainty for the 2025 fiscal year. Airports account for over 66% of the passenger volume for Hertz (HTZ, Financial) and Avis Budget Group (CAR).
While used car prices are expected to remain stable in 2024, Hertz faces increased uncertainty, raising risks for its depreciation outlook in 2025. Morgan Stanley has rated Hertz as "Hold," lowering its price target from $7 to $3. Avis, on the other hand, received an "Overweight" rating, although its price target was adjusted from $160 to $120.
Morgan Stanley favors Avis for its operational efficiency and financial health, despite acknowledging potential market risks. Jonas commented that while car rental companies might experience volatile earnings periods, Avis holds an advantage in managing these fluctuations.
Hertz's stock has declined by 63% this year, while Avis has seen a 45% drop.
