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The Morning Brief: Credit Suisse Downgrades Crash Car Rental Stocks

Shares of two well-known car rental companies — both hedge fund favorites — fell sharply on Friday after Credit Suisse slashed its price target on the stocks.

The investment bank lowered its estimates and its price target on Avis Budget Group from $44 to $38 and downgraded the stock to neutral following the company’s fourth-quarter results. In a note to clients, Credit Suisse said Avis is still the preferred play in the rental car industry but adds its “less exciting outlook leaves us less bullish.” The investment bank cites several risks to its target and rating, including “travel trends, weather, used car prices, and broader macroeconomic factors.” Shares of the car rental company fell 5.6 percent on Friday, to close at $33.76. At year-end, SRS Investment Management was the largest shareholder, counting Avis as its fourth-largest U.S. long position. Glenview Capital Management was the second-largest investor, although the stock was the seventeenth-largest U.S. long holding for the hedge fund firm, headed by Larry Robbins. The stock is also the tenth-largest long holding of Pagoda Asset Management.

Credit Suisse also slashed its price target on Hertz Global Holdings from $27 to $15 and downgraded the stock to underperform from neutral following Avis Budget’s fourth-quarter update, asserting it had negative implications for Hertz.

“In an environment that presents weak volume growth, flattish pricing, and inflationary fleet costs, we see HTZ struggling to generate profit growth reflected in consensus estimates,” the investment bank states in its note on Hertz. Its stock fell 7.7 percent on Friday, to close at $19.99. Carl Icahn is by far the largest shareholder, with nearly 7 percent of the shares. Glenview is the third-largest shareholder, while SRS is the seventh largest. Coatue Management is the tenth-largest investor.

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Shares of Kraft Heinz, another popular hedge fund stock, surged 10.5 percent on Friday, to close at $95.65, after the packaged foods giant offered to acquire rival Unilever in a blockbuster deal valued at $143 billion. However, Unilever — arguing the offer was too low — turned down the overture, according to Kraft Heinz.

At year-end, the stock was Caxton Associates’s second-largest U.S. stock long, the seventh-largest long of Falcon Edge Capital and the eighth-largest long of Valiant Capital Management. Shares of Unilever surged about 14.6 percent. However, one is hard pressed to find a hedge fund investor in the stock that holds a sizable stake, either on an absolute basis or relative to their own portfolio.

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Chase Coleman’s Tiger Global Management increased its stake in Domino’s Pizza by nearly five-fold, to 3 million shares, as of February 7. It now has a 7.2 percent stake in the chain of mediocre pizza restaurants.

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