2 Stocks In The Struggling Rental Car Sector Are Surging This Week

As ride-sharing companies continue to become a larger player in the auto industry, rental car companies like Avis Budget Group Inc. CAR and Hertz Global Holdings, Inc HTZ have struggled.

However, this week both stocks have surged over 10 percent following a couple of positive reports. Deutsche Bank maintained its Buy rating on Avis, seeing over 100 percent upside ($45 price target).

Analyst Chris Woronka believes the market is pricing in a major crisis scenario for rental car companies, which is unlikely to play out in the near future.

A Corrected NADA Report Helps Show Signs of Potential

Woronka highlighted the recent National Automobile Dealers Association report, which corrected its index Monday night and reported the used car price index fell by only 7.6 percent; the number was originally reported to be 10.3 percent. This move sent Avis and Hertz higher, which demonstrates how volatile traders are right now about the rental car market.

Despite the report, Woronka noted that Deutsche Bank values the Manheim used vehicle value index over NADA numbers when using data points to evaluate rental car stocks like Avis. The Manheim Index has reported much more favorable numbers for the industry.

The NADA index is expected to come out with lower numbers next month as the data is being dragged down by older vehicles. However, Woronka tells investors to keep a closer eye on the Manheim index.

Benzinga Pro also heard M Science said Hertz Q2 was "tracking generally in-line with Street - with some green shoots."

Piper Jaffray analyst Kevin Baker noted on Monday that he expects pressure on the rental car industry to continue throughout 2017. However, in the long run, he believes investors should be patient with the industry.

Avis and Hertz were both trading up over 5 percent Wednesday.

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