Credit Suisse downgraded car rental company Hertz (HTZ) to Underperform, its equivalent of a sell rating, from Neutral. In the wake of Avis' weak Q4 volumes and its lower than expected guidance, the outlook for Hertz has deteriorated, the firm warned. The firm also downgraded Avis Budget (CAR), lowering its rating on the shares to Neutral from Outperform.

AVIS RESULTS: Avis' sales volume in the Americas fell 1% last quarter, and it predicted that its volume for the region would increase a lower than expected 1%-2% this year, noted Credit Suisse analyst Anjaneya Singh. Moreover, the company's profits and revenue both came in slightly below expectations.

HERTZ READ THROUGH: Avis' results bode badly for Hertz's Q4 results and guidance, contended Singh. Specifically, Hertz will have difficulty generating profits, given the "weak volume growth, flattish pricing, and inflationary fleet costs" that characterize the rental car environment, the analyst warned. Hertz's Americas volume growth, like that of Avis, will probably be weak, the analyst stated. Since Avis usually executes very well, Hertz's results will probably be "much worse" than those of its competitor, according to Singh. The analyst slashed his price target on Hertz to $15 from $27.

AVIS: Singh says that Avis remains the best stock in the rental car space, but he believes that the company's guidance suggests that its growth will be "lackluster." The stock's risk/reward ratio is "relatively balanced" at current levels, the analyst stated. He cut his price target on the shares to $38 from $44.

PRICE ACTION: In early trading, Hertz sank 5.6% to $20.44 and Avis fell 2.8% to $34.77 per share.