Major firms downgrade Avis after stock doubles in single day, saying fundamentals no longer matter

Published Wed, Nov 3 20216:54 AM EDTUpdated Wed, Nov 3 20219:35 AM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Two top Wall Street firms are warning investors to back away from Avis Budget after the stock rocketed higher Tuesday. The rental car company posted a huge earnings beat for the third quarter and expanded its stock buyback plan, sending shares soaring . The stocks was up more than 200% for the day at one point and closed 108% higher. However, a move that large was unjustified by even the strong financial results, according to several Wall Street analysts. JPMorgan's Ryan Brinkman double-downgraded Avis Budget to underweight from overweight, saying in a note to clients Wednesday that technical factors may have caused the stock's move to get out of hand. "While we had only recently upgraded Avis shares to Overweight ... and fundamentals are the strongest they have ever been, the unprecedented run-up in Avis shares ... prompt our downgrade to Underweight, including given the consideration that the shares may have risen in part for technical reasons apart from the fundamentals," the JPMorgan note said. The strong results, combined with high short interest, high long-term ownership and management commentary about electric vehicles likely caused a "short squeeze" Tuesday, JPMorgan said. A short squeeze occurs when investors, such as hedge funds, that have bet against a stock are forced to close their positions by buying a rising stock, pushing the share price even higher. JPMorgan did raise its price target on the stock to $225 per share from $100 per share, but that is still more than 30% below where the stock closed Tuesday. Deutsche Bank analyst Chris Woronka also downgraded the stock to sell from hold, saying in a note to clients that Tuesday's move showed that trading had shifted "away from fundamentals." "This downgrade is not a call to short CAR. Simply put, it is a view that investors who owned the stock prior to Tuesday should take profits. We simply cannot justify, using any reasonable traditional valuation metric, the $10.5 billion of incremental value generated by the more than doubling of the stock in one day," the Deutsche Bank note said. Deutsche Bank hiked its price target on the stock to $210 per share from $119 per share, which would represent downside of roughly 37% for Avis Budget. —CNBC's Michael Bloom contributed to this report.

A customer waits for his car at the garage of Avis Budget Group at the San Francisco airport.

David Paul Morris | Bloomberg | Getty Images

Two top Wall Street firms are warning investors to back away from Avis Budget after the stock rocketed higher Tuesday.