Avis Budget Group (NASDAQ:CAR) had good news this morning. The budget rental car service recently blew past Wall Street expectations when it reported earnings for the first quarter of 2021. CAR stock shot up today after Avis reported higher-than-expected earnings and revenue. However, bearish sentiment is riding high as the next Fed meeting on interest rates draws near. Unfortunately for Avis, this negative market momentum is overpowering the boost it should have gotten.
What’s Happening With CAR Stock
It has been a highly turbulent morning for CAR stock. Despite the positive earnings report, today hasn’t been a straight shot to the top. Shares surged more than 9% after markets opened, but less than thirty minutes later, they had fallen even faster. Within the first hour, CAR has changed direction again and is currently up 1.64% for the morning. However, it is early in the day and the stock already looks poised to dip again.
Why It Matters
All this raises the question of why a stock would fall after such good news. Avis’ adjusted earnings were reported at $9.99, substantially higher than the per-share price of $3.45 predicted by Wall Street. The company also reported revenue of $2.4 billion as opposed to the predicted $2.2 billion. These numbers should be reassuring to investors who were not excited about CAR stock prior to the report.
As Chris Woronka of Deutsche Bank (NYSE:DB) noted, “Fleet costs were (once again) the primary driver of the outsized beat, although key top-line metrics beat the Street as well.”
All this should have led to a good day for CAR stock. But things were looking bleak on Wall Street today even before markets opened. Bearish energy spurred by the upcoming Fed meeting had U.S. markets pointing lower before they opened today. Both the Dow Jones industrials and S&P 500 saw futures decline by 0.2%. Wall Street is expecting another rate hike, and it is bracing for the worst.
The forces pushing Avis down today likely have little to do with the company. Does this make CAR stock a buy, though? As of now, most experts would say no. Despite Woronka categorizing its recent earnings report as an “unfathomable beat,” he still maintains a “hold” rating and a $193 price target, well below the current price of $285.
While fleet costs may indeed help the company stay competitive, it still has to deal with rising energy costs. Gas prices are still rising and will likely compel some consumers to opt against renting cars in the coming months, even as the busy summer season approaches. And while CAR stock experienced a bump from Reddit investors in 2021, the r/WallStreetBets crowd seems to have moved on. Nothing about CAR stock is encouraging.
What It Means
This is the second consecutive earnings beat that we’ve seen from Avis. Indeed, its final report for 2021 brought another positive earnings report. But even two back-to-back earnings beats haven’t been enough to get Wall Street excited about the stock. And that is telling. Today, we are reminded that CAR stock simply doesn’t have the power to overcome negative market momentum even when it delivers good news for investors.
What investors should take from the recent Avis earnings report is that fleet shipping is keeping these companies alive. However, other companies less constrained by rising gas prices are better plays right now.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
