Avis Budget Group (CAR) shares experienced a second consecutive day of sharp declines, following a meteoric rise from just over $100 to nearly $850 within a single month. This surge coincided with one of the fastest rebounds in U.S. stock market history. There are indications that speculative sentiment in U.S. markets may be waning.
During early trading on Thursday, Avis shares plunged by 50%, dropping $179 to $223.50 per share. This followed a 38% decline on Wednesday to $444, even though the stock had reached an all-time high near $848 earlier that same day. Widespread market anticipation that the company might issue additional shares to alleviate the short squeeze has contributed to the selling pressure.
After the market closed on Wednesday, Avis announced it would report its first-quarter earnings before the market opens on April 29, approximately one week earlier than the previous year. The advanced earnings date has fueled concerns that the company could use the occasion to announce a share issuance, an expectation that is weighing on the stock price.
In a client note on Thursday, J.P. Morgan analyst Ryan Brinkman downgraded Avis from "Neutral" to "Underweight," while simultaneously raising his price target from $123 to $165. He noted that while the recent extraordinary, squeeze-driven price surge might present management with a significant opportunity to create long-term value through capital market actions, the current stock price appears vastly overvalued even under the most optimistic fundamental assumptions.
According to Bloomberg data, Avis has approximately 35 million shares outstanding. As of March 31, short interest stood at around 9 million shares. The company's market capitalization is approximately $9 billion.
The catalyst for this short squeeze was the actions of two investors—SRS Investment Management and Pentwater Capital Management. Through a combination of direct share ownership and total return swaps, they effectively gained control of over 100% of Avis's available shares. This propelled the stock price from around $100 on March 20 to its recent peak.
In March, the company filed to sell up to 5 million new shares at market prices through a group of Wall Street brokers, with proceeds potentially used for debt repayment. However, the market widely believed the company was unlikely to initiate the sale before its earnings report. The two major shareholders were also thought to be waiting for the earnings release before considering any significant sales.
SRS Investment Management is led by Jagdeep Pahwa, who also serves as Executive Chairman of Avis. Due to Pahwa's status as an insider, SRS may be restricted from selling shares before the earnings announcement. SRS is the largest shareholder, holding 17.4 million shares directly and an additional 2.9 million via swaps.
According to an April 2 proxy filing, Florida-based Pentwater holds 7.8 million shares directly and 10.2 million via swaps. Led by Matthew Halbower, Pentwater is known for its involvement in merger arbitrage. Furthermore, the "short-swing profit" rule under the Securities Exchange Act of 1934 could limit its ability to profit from selling shares held for less than six months, with Pentwater's holdings including approximately 3 million shares purchased within that timeframe.
Despite the significant decline, Avis shares remain expensive. Based on projected 2026 earnings of approximately $4 per share, the forward P/E ratio is about 60 times. Using an estimated 2026 EBITDA of around $800 million, the enterprise value multiple is nearly 20 times, whereas Avis has historically traded around 10 times EBITDA. The company carries approximately $6 billion in corporate debt.
In comparison, competitor Hertz has revenues about 75% of Avis's but a market capitalization of just $2.1 billion, roughly 20% of Avis's value. Year-to-date, Hertz shares have risen about 20%, while Avis is still up approximately 100% overall. Avis, Hertz, and privately-held Enterprise collectively control about 90% of the U.S. car rental market.
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