As Avis shares spike to meme-stock levels, Wall Street warns investors to stay away

November 3, 2021, 12:30 PM UTC

Avis Budget Group Inc.’s pledge to expand in electric vehicles wowed Tesla Inc. acolytes and the meme-stock traders who love to embrace once-fallen companies. The pros at Deutsche Bank AG and JPMorgan Chase & Co. are another matter.

The shares soared 108% Tuesday to $357.17, prompting Deutsche Bank on Wednesday to lower its rating of Avis, which has the stock symbol CAR, to sell from hold, while JPMorgan cut it two notches, to underweight from overweight. The frenzy began after executives said the car-rental company will play a big role in the adoption of electric vehicles in the U.S., and the rally fed on itself as speculators who had sold the stock short repurchased it to curb their losses.   

The Avis story is shaping up as another installment in the battle of the Reddit crowd against the Wall Street establishment, with day traders using apps such as Robinhood to push up share prices in defiance of bearish hedge funds and Wall Street analysts. The stock slipped 6.5% in premarket trading.

“Our first order of business is to emphasize that this downgrade is not a call to short CAR,” Deutsche Bank analyst Chris Woronka wrote in a report Wednesday. “Simply put, it is a view that investors who owned the stock prior to Tuesday should take profits. We simply cannot justify, using any reasonable traditional valuation metric, the $10.5 billion of incremental value generated by the more than doubling of the stock in one day.” 

JPMorgan’s Ryan Brinkman raised his profit forecast and lifted his price target for the stock to $225 from $100. While the fundamentals of the business are stellar, the company’s now overvalued, he said. 

Avis now has soared almost 4,500% since its pandemic low in March 2020 as the company benefited from a resumption of travel and a surge in the value of used cars. Avis’s third-quarter earnings beat estimates Tuesday and the company announced a bigger-than-expected stock buyback. 

But by mentioning electric vehicles on the conference call, it was also able to bask in the glow of Tesla’s success, as rival Hertz Global Holdings Inc. did last week when it said it was ordering 100,000 Tesla vehicles. Avis didn’t disclose specific plans to add Tesla cars or any electric vehicles to its fleet. 

“Their CEO also used that most magic of words ‘EV’, which also attracted the Elon Musk meme-disciples from their Reddit burrow,” said Jeffrey Halley, senior market analyst at Oanda. “One thing is clear to me: words like digital, online, and especially EV are good for a CEO’s stock price.”

The flurry of retail-led speculative buying caused the stock to more than triple at one point Tuesday, and the mania spread to Europe, where rival Sixt SE soared 8%.

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