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Investing.com -- JP Morgan downgraded Avis Budget (NASDAQ:CAR) Group to Neutral from Overweight, saying the stock’s sharp rally since March has outpaced the underlying earnings outlook, while near-term pressures from safety recalls and fading tariff tailwinds weigh on estimates.
Avis shares have surged 231% since the U.S. announced auto sector tariffs in late March, and 103% since the company reported Q1 results in May, JP Morgan noted.
Over the same periods, the S&P 500 rose 12% and 13%, respectively.
The firm cited two key reasons for the estimate cut.
First, a wave of industry-wide vehicle recalls, impacting 4% of Avis’s Americas fleet, is pushing up depreciation and holding down rental pricing.
Affected vehicles can’t be rented or sold until fixed, increasing fleet size at lower utilization and limiting gains on sale.
Second, while the company still stands to benefit from rising used car prices, JP Morgan said the positive impact of the Section 232 auto tariffs has moderated.
Exemptions and lower negotiated tariff rates with key trading partners like Japan and the EU have diluted the earlier assumptions.
The brokerage said it still sees long-term optionality in Avis’s model, but believes the current share price reflects much of that upside.
“Avis, in our view, is well positioned to leverage growth in the industry and represents an attractive investment opportunity,” analyst said on stock’s long term prospect.
The company’s balance sheet is historically strong, with lower cost of fleet financing, declining leverage, and no near-term maturities.