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Avis shares hammered after hurricanes hit revenue

Key Points
  • Avis third quarter revenue was slightly below Wall Street's expectations, according to FactSet.
  • MKM Partners says rising costs "should not mask improvement in underlying trends."
  • Avis lowered the higher end of its revenue forecast for this year by $50 million.
A customer waits for his car at the garage of Avis Budget Group at the San Francisco airport.
David Paul Morris | Bloomberg | Getty Images

Avis Budget Group stock plunged nearly 12 percent in midday trading Tuesday after reporting rising costs for its fleet of automobiles.

The car rental company reported third quarter profits after Monday's close above estimates, but revenue of $2.75 billion was below Wall Street's expectations of $2.78 billion in a FactSet survey of analysts. Avis' costs per vehicle rose 3 percent, which company management has previously said is due to increasing the rental fleet too quickly in the first half of the year.

MKM Partners remained optimistic despite the lackluster results, saying "the outlook for fleet costs is more sanguine" looking into 2018.

"Hurricane headwinds in the third quarter should not mask improvement in underlying trends," MKM analyst Christopher Agnew wrote in a note Tuesday."

While Agnew noted that the costs from hurricanes battering the southeast were greater than expected, he says "the market should and ultimately will look through noise from the storms."

"We believe the strength in underlying trends are more important going forward," Agnew added.

Avis lowered the higher end of its revenue forecast by $50 million for 2017, saying it now expects to generate between $8.9 billion and $8.8 billion.