Bear of the Day: Avis Budget Group (CAR)

Avis Budget Group (CAR), a Zacks Rank #5 (Strong Sell), is one of the most talked-about stocks in the market right now, but investors are playing nothing but a short squeeze.

The move has been spectacular, but when the dust settles, investors will be left staring at a business that posted a net loss of nearly a billion dollars and is trading at a valuation that has completely detached from reality.

About the Company

Founded in 1946 and headquartered in Parsippany, New Jersey, Avis Budget Group is one of the world's largest vehicle rental companies. The company operates the Avis, Budget, and Zipcar brands across roughly 180 countries.

Avis generates revenue primarily through daily and weekly vehicle rentals to both leisure and commercial customers, with fleet management and utilization rates serving as the key operational levers that drive profitability.

The company has a market cap of $25B, with a Zacks Style Score of “B” in Momentum, but “D” in both Value and Growth.

A Short Squeeze Built on a Shaky Foundation

The bull narrative is straightforward as auto tariffs drive up new car prices, helping used vehicle values rise. With Avis sitting on a massive rental fleet, it benefits from better residual values and lower per-unit depreciation.

Since March 20th the stock has gone from $100 to $847. This buying has been driven by forced short covering rather than any fundamental improvement in the business.

The reality is that earnings tell a different story than the stock.

Q4 revenues slightly below expectations, but the company posted a net loss of $995 million and Adjusted EBITDA of just $748 million. Q4 alone produced a net loss of $856 million, including a $518 million impairment charge tied to its electric vehicle fleet, which management was forced to write down after shortening the useful life of those assets.

Earnings Estimates Are Going the Wrong Direction

Looking past the current quarter and large move lower, estimates are still seeing numbers go lower over the last 60 days.

For next quarter, estimates have gone from $3.03 to $2.79

For the current year, $7.30 to $3.64.

And for next year, $10.11 to $8.08.

These are not the numbers that would justify a move like we have seen in the stock. Instead, the up move has stemmed from a low float short squeeze that has brought the stock into extreme overbought territory.

Technical Take

The RSI on CAR recently hit extreme overbought and unsustainable territory above 95. This level provides an area where in the past there has been a violent mean reversion once the squeeze exhausts itself.

The upcoming earnings report in early May will be the event that forces the market to reconcile the rally with the actual P&L.

For those interested in the bullish narrative, they should wait for the levels below and take caution if earnings are not positive.

Fibonacci Retracement (50%): $475

Fibonacci Retracement (61.8%): $385

Moving averages

21-day: $312

50-day: $190

200-day: $160

In Summary

In the end, this rally looks far more technical than fundamental. A powerful short squeeze has driven an extraordinary move, but it has done so against the backdrop of deteriorating earnings, collapsing estimates, and a business still working through significant operational headwinds.

For those interested in transportation peers,  look at Universal Logistics (ULH). The stock is a Zacks Rank#1 (Strong Buy) that is coming off a 380% EPS beat.

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

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