Is a Bullish Options Trader Right About Hertz? Plus a Look at Dollar Thrifty and Avis (HTZ, DTG & CAR)

Recently, an options trading investor placed a bullish bet that Hertz Global Holdings (NYSE: HTZ) would produce double-digit gains during the next six weeks, meaning it might be time for investors to take a closer look at it and other car rental stocks like Dollar Thrifty Automotive Group (NYSE: DTG) and Avis Budget Group (NASDAQ: CAR). Specifically, a sizable ratio call spread was opened up in the Jan. 2012 contract by an options trader who bought 3,150 calls at the $12.5 strike price and selling 6,300 calls at the $17.5 strike. If Hertz shares rally around 10.5% to surpass the effective breakeven point at $13.18, the trader will profit and enjoy maximum profits if shares surge 46.7% to $17.50 at expiration day next year. Moreover, it appears that travel increased for this year’s Thanksgiving holiday compared with last year’s – a trend that would likely continue through the end-of-the-year holidays. Hence, will the options trader or investors make a profit on car rental stocks like Hertz Global Holdings (HTZ), Dollar Thrifty Automotive Group (DTG) or Avis Budget Group (CAR)? Here is a closer look at all three to help you decide:

Hertz Global Holdings (NYSE: HTZ)

Hertz Global Holdings is a worldwide airport general use car rental brand that operates from approximately 8,500 locations in 146 countries at the end of 2010. One reason besides any potential increase in holiday travel that might have peeked the interest of the earlier mentioned options trader is the recent announcement of a a multi-year and multi-million dollar deal where Hertz will be integrated into Ticketmaster’s booking path. This means that Ticketmaster’s customers will be directed towards Hertz Global Holdings when ordering their concert tickets. Moreover, there are other big reasons to be optimistic about Hertz Global Holdings. Specifically, Hertz Global Holdings reported that 3Q2011 revenue rose 11% year-over-year to $2.4 billion while net income increased from $155.3 million to $206.7 million – beating estimates. Hence, my bet would be that the options trader who placed the bullish bet on Hertz Global Holdings along with other investors will likely come out winners. On Wednesday, Hertz Global Holdings fell 0.42% to $11.92 (HTZ has a 52 week trading range of $7.80 to $17.64 a share) for a a market cap of just under $5 billion.

Dollar Thrifty Automotive Group (NYSE: DTG)

Dollar Thrifty Automotive Group provides daily rental of vehicles to business and leisure customers through company owned stores worldwide. Investors should note that Dollar Thrifty Automotive Group reported a 2% year-over-year revenue increase to $451.7 million thanks to a 4.1% increase in rental days by customers. Dollar Thrifty Automotive Group also reported that net income came in at $66.6 million - up from $49.2 million for the same period last. Moreover, Dollar Thrifty Automotive Group noted that a strong used-car sales market also helped as gains on sales of vehicles rose from $10 million last year to $17.4 million this year with the average gain per vehicle sold being $1,125 verses $632 for 3Q2010. Finally, investors should note that both Hertz Global Holdings and Avis Budget Group have attempted to merge with or buy out the Dollar Thrifty Automotive Group but these bids have since been dropped after a year long battle. On Wednesday, Dollar Thrifty Automotive Group fell 0.49% to $69.56 (DTG has a 52 week trading range of $46.86 to $84.27 a share) for a market cap of $2 billion.

Avis Budget Group (NASDAQ: CAR)

Avis Budget Group operates Avis, a rental car supplier positioned to serve the commercial and leisure segments of the travel market; and Budget, a rental car supplier. Investors should be aware that Avis Budget Group recently reported that 3Q2011 net income fell 9% because the company had spent money buying Avis Europe PLC plus it failed to buy Dollar Thrifty. In fact, the Avis Budget Group had spent $31 million after taxes trying to buy Dollar Thrifty plus $16 million after taxes to cover losses on foreign-currency transactions related to the Avis Europe acquisition. However and moving forward, what should matter to investors is the fact that Avis Budget Group’s 3Q2011 revenue rose 7% year-over-year from $1.51 billion to $1.62 billion while domestic car rental revenue rose 6% to $1.19 billion and international car rental revenue rose 16% to $318 million. If these bullish trends continue, investors could come out a winner. On Wednesday, Avis Budget Group rose 0.25% to $11.97 (CAR has a 52 week trading range of $8.45 to $19.49 a share) for a market cap of $1.26 billion.

The Bottom Line. It would appear that options traders and investors alike have a good chance of coming out as winners if they take Hertz Global Holdings (HTZ), Dollar Thrifty Automotive Group (DTG) and Avis Budget Group (CAR) for a test drive.