Why Avis Budget Group Stock did a U-Turn This Week
Key Points
This was aided greatly by a positive analyst note.
The pundit who wrote it upgraded his recommendation on the car rental giant.
Avis Budget Group (NASDAQ: CAR) stock didn't exactly begin this trading week in the fast lane, but it soon shifted into favor with investors. Following a notable drop on Monday, sentiment on the car rental mainstay improved dramatically. Ultimately, the stock ended the week 28% higher, according to data compiled by S&P Global Market Intelligence.
Safe from disruption?
On Monday, Avis was out of favor with Mr. Market. After market hours on the previous trading day, it announced a secondary share issue and, as usual with such flotations, investors traded out of the stock on fears of dilution.
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On Tuesday, however, its fortunes suddenly improved with an analyst recommendation upgrade. Jefferies prognosticator John Colantuoni upgraded three stocks in his coverage universe, one of which was Avis. He now feels that the company's shares warrant a buy.
Colantuoni's new take was a general analysis of recent developments in artificial intelligence (AI). According to reports, the analyst believes that Open AI, ChatGPT's owner, is shifting toward a more advertising-based revenue model, in favor of earning a cut of business transactions effected with AI assistance.
Pain at the pump
In the pundit's view, this clears a path for companies like Avis and the grocery delivery service Instacart to benefit directly from AI, rather than compete with it (Instacart and Expedia Group were the other stocks Colantuoni upgraded to buy).
I think Avis, which has benefited from recent chaos at U.S. airports, might be in for a slump -- no matter how effectively it harnesses AI. Surging oil prices are driving up gas prices, making consumers hesitant to rent cars. Inconveniently, the vast majority of Avis cars are traditional, gas-powered models.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool recommends Instacart. The Motley Fool has a disclosure policy.