In 2021, rental car giant Hertz (NASDAQ:HTZ) announced the purchase of 100,000 EVs from Tesla (NASDAQ:TSLA). The company anticipated a quarter of its overall fleet, roughly 500,000 vehicles, would be EVs by 2024. Looking back, this decision has proved to be problematic. The stock has lost almost 80% of its value, the CEO has resigned, and the company is taking huge losses while trying to sell off the Teslas. While there may be light at the end of the tunnel, it could also be the headlamp of an oncoming train.
The stock trades at a discount, though savvy value investors might want to wait for clear signs of a turnaround to avoid a potential value trap.
Hertz Faces Headwinds
The Hertz Corporation, a subsidiary of Hertz Global Holdings, Inc., operates various established vehicle rental brands, including Hertz, Dollar, and Thrifty. It’s recognized as one of the major players in the global vehicle rental market, and the Hertz brand holds an international reputation for its services.
The Hertz Corporation also operates the Firefly vehicle rental brand and Hertz 24/7 car-sharing service, primarily in international markets. Further diversifying its business model, Hertz sells vehicles through Hertz Car Sales, allowing it to cycle its fleet regularly.
The company has faced significant headwinds – industry growth has slowed, there is more competition, and the promise of robo-taxies is weighing on the outlook for future growth.
Recent Financial Results for Hertz
Hertz revealed disappointing results for the first quarter. While the company reported a revenue increase by 1.5% year-over-year to $2.08 billion, surpassing the estimated figure by $30 million, it also had a significant miss in its adjusted EBITDA, resulting in a negative $567 million, as opposed to the consensus expectations that projected a negative $92 million. This led to an adjusted EPS of -$1.28, considerably lower than the consensus expectation of -$0.45.
Hertz attributed a significant factor of this loss to a hefty $588 million surge in vehicle depreciation, $195 million of which was related to electric vehicles set for sale, as the company upsized its EV disposition plan by 10,000 vehicles.
The company ended the quarter with corporate liquidity of $1.3 billion. This includes a GAAP operating cash flow of $370 million, an adjusted operating cash outflow of $697 million, and an adjusted free cash outflow of $729 million.
What Is the Price Target for HTZ?
Analysts following the company have suggested a cautious approach toward the stock is warranted. For instance, Susquehanna analyst Christopher Stathoulopoulos recently lowered his price target from $10 to $5 while keeping a Neutral rating on the shares. He noted the expectation for ongoing pressure and risk skewing towards the downside into the second half of 2024.
Hertz Global Holdings is rated a Moderate Sell based on seven Wall Street analysts’ average recommendations and price targets over the past three months. The average price target for HTZ stock is $5.30, representing a -0.76% change from current levels.
The stock trades at the low end of its 52-week price range of $4.35-$19.36 and continues to show negative momentum as it trades below the 20-day (5.47) and 50-day (6.23) moving averages. It appears to be relatively undervalued, with a P/S ratio of 0.17x vs. the Rental & Leasing Services industry average of 1.55x.
Bottom Line on HTZ
As Hertz grapples with industry headwinds, a big bet on EVs hasn’t worked out, adding to the company’s woes. A new CEO has been brought in to try to right the ship. The stock is down considerably and continues to show negative momentum. There may be an opportunity to snap up shares at a deep discount, but investors may want to hold off until there are concrete signs of sunlight rather than the headlights of an oncoming train.
