Hertz Global Holdings, Inc. (HTZ) and Avis Budget Group, Inc. (CAR) shares moved sharply lower during Tuesday's session after Morgan Stanley warned that investors still underestimate the impact that the COVID-19 pandemic will have on transaction days, fleet utilization, and pricing for car rentals.
Analyst Adam Jonas cut his price target for Hertz Global from $5.00 to $2.00 while slashing his price target for Avis Budget Group from $11.00 to $7.00. While the situation remains very fluid, the analyst said that investors should prepare for potentially significant disruptions to earnings and free cash flow due to the slowdown in travel.
In addition to the bearish analyst comments, Hertz confirmed that it has seen an increase in rental cancellations and a decline in forward bookings. The company plans to incur $30 million in costs to reduce its workforce to align with travel demand, including $28 million in severance or termination payments and $2 million in benefits costs.
Earlier this month, The New York Post also reported that Hertz was looking for government aid to help fill its budget shortfall of $1 billion to $1.5 billion over the coming months. The company said that COVID-19 has reduced its core rental business while hurting the resale value of its cars in the used car market.
From a technical standpoint, Hertz stock broke down from a descending triangle toward its 52-week lows of $3.18. The relative strength index (RSI) moved toward oversold levels with a reading of 34.11, but the moving average convergence divergence (MACD) could see a near-term bearish crossover, signaling more downside in the intermediate term.
Traders should watch for an extended breakdown to retest lows and consolidation near $3.00 levels. If the stock rebounds higher, traders could see the stock break out from its descending triangle and move toward the 50-day moving average at $9.80, although such a move would likely be news-driven given the bearish sentiment surrounding the stock's current narrative.
The author holds no position in the stock(s) mentioned except through passively managed index funds.