Amateur day traders had a field day with Hertz. Now, Morgan Stanley says Avis stock could be next and skyrocket 65%.

• After Hertz filed for bankruptcy, its stock became a playground for day traders hoping to capitalize on the volatility.
• The company's lawyers even cited the gains as reason to sell more potentially worthless stock.
• Now, Avis could be next. Morgan Stanley upgraded the stock Thursday with an aggressive price target of $37.

With its competitor Hertz in bankruptcy, Avis Budget Group is primed to scoop up market share.

That's great news for investors, Morgan Stanley says, and the stock could rise as high as $37 — more than 65% above its value at the time of the upgrade.

The bank's new thesis for the car-rental company is three fold: an improving used-car market that didn't crash nearly as badly as some had predicted, fresh signs of an economic recovery, and market share gains not just from Hertz.

"We believe Avis will take market share from Hertz as well as other transportation mediums (flights, trains), as consumers use rental cars as alternatives for short-haul routes," Adam Jonas, the bank's autos analyst, said in a note to clients Thursday.

That potential use-case, as airline passenger numbers remain well below normal levels, was on full display going into the Fourth of July weekend. In many cities including New York, rental cars were in high demand and even unavailable at many high-demand locations.

Shares of Avis jumped as much as 28% following his upgrade to overweight from neutral.

When Hertz entered bankruptcy earlier in June, its share price soared as amateur day traders attempted to play the market. The company's lawyers cited such volatility-causing appetite as reason to sell even more stock that could potentially have wound up worthless. The sale was eventually scrapped after concerns from the US' top stock regulator.

As the pandemic brought nearly all travel to a standstill — beginning Hertz's woes that eventually landed it in bankruptcy court — analysts predicted the bottom would completely fall out of the market for used cars as those previously owned by rental giants flooded the market.

That hasn't happened, Jonas says, and used-car prices are only down about 5% to 10%.

"Our concerns of indiscriminate de-fleeting," Jonas said, "while still possible, are less likely and have been alleviated by the strength of new car sales."

Passenger numbers are starting to pick up for airlines (and airports were previously a massive chunk of rental car revenues), and unemployment seems to be slowing. All eyes now turn to a potential vaccine for true recovery, which may not be completely necessary for Avis to succeed.

"We think the market is underestimating the potential for Avis to be more profitable with lower revenues," Jonas said, "over the next 18-25 months."