Avis, Hertz Provide Glimpses Into The Car Rental Space Of An Autonomous Future

It’s not just Ford Motor Company F and General Motors Company GM that could see major changes to their businesses at the dawn of the automated-vehicle era. According to new reports, car rental companies Avis Budget Group Inc. CAR and Hertz Global Holdings, Inc HTZ may be picking sides as they position themselves for a driverless future.

Avis recently announced a multiyear partnership with Alphabet Inc GOOGL GOOG’s Waymo driverless car unit. Bloomberg has also reported that Hertz is working with Apple Inc. AAPL to test driverless car technology.

Though the partnerships will not have any meaningful immediate financial impact, they should come as welcome news to Avis and Hertz investors, MKM Partners analyst Christopher Agnew says. These deals suggest rental companies have a future in a driverless world and will not become obsolete within 5-10 years, Agnew says. Instead of rental car companies becoming less relevant, he believes they will become even more relevant.

“We believe a large under-appreciated asset for the car rental companies are its fleet management and logistical capabilities as well as its broad geographic footprint, particularly its airport locations,” Agnew wrote on Tuesday (see Agnew's track record here).

“Between traditional on-airport car rental, off-airport rentals, car sharing (Zipcar, Enterprise Car share) and corporate fleet management (Donlen and Enterprise Fleet Management), the car rental industry has broad expertise across different types of fleet management.”

Agnew noted that Avis is also expected to begin a connected car pilot by the end of July as part of the company’s long-term margin expansion initiative. The pilot is intended to help the company optimize a wide range of measures, including gas measurement and preventative maintenance.

MKM maintains a Buy rating for Avis, Hertz and Alphabet with price targets of $40, $22 and $1170, respectively.

At last check, shares of Avis were down 6.14 percent at $25.97, while shares of Hertz were down 0.83 percent at $10.75.