Avis, Hertz shares climb as MKM says negative sentiment on car rental sector is overdone

Car rental stocks got a shot in the arm Friday, when MKM Partners said negative sentiment on the sector has swung too far. MKM analysts listed four factors to support its thesis, including what it called a "major disconnect" between car rental and other travel stocks as its relates to expectations for travel trends. Travel stocks, such has hotels, timeshare, cruise and airline stocks, have gained since the November presidential election, on expectations that corporate travel is set for a rebound. Hotel stocks, for example, have climbed 28% since the election, while car rental stocks have slumped. MKM further believes used car fundamentals are better than the market is assuming, noting January and February are always tough months to extrapolate fleet cost changes because volumes are low and this year, tax refunds have been delayed. Avis Budget Group Inc. stock is currently trading at a free cash flow yield of close to 20% and historically, 16% is a good entry point, the analysts wrote. And pricing trends are set to reach an inflection point in April and set up well for the summer period. Avis shares were up 0.1%, after falling nearly 20% in the year to date. Hertz Global Holdings Inc. rose 1.5%, after a 17% decline in the year so far. The S&P 500 has gained about 6% year-to-date.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. Visit MarketWatch.com for more information on this news.