Hertz's stock is 'in the parking lot' for these analysts

By Claudia Assis

BofA Securities starts coverage of Hertz's stock at hold, saying it has 'little room for vroom'

Hertz Global Holdings Inc. has "little room for vroom," with profit growth curbed by rising expenses related to its rental-car fleet and the still-reverberating effects of its bankruptcy a few years ago.

That's from analysts at BofA Securities, who on Tuesday started covering Hertz's stock (HTZ) at the equivalent of hold. The analysts, led by John Babcock and John Murphy, had a $9 price target on the stock, representing upside of about 24% over Tuesday's share price.

"In our view, 2024 headwinds are factored in the stock, but [earnings before interest, taxes, depreciation and amortization] will only moderately improve in 2025," the analysts said. Earnings growth will likely be curbed by a "sizable" increase in vehicle-interest expense of around 40% this year and about 15% in 2025. In addition, Hertz's debt levels are at their highest since the company emerged from bankruptcy in 2021, they said.

Moreover, "recent [management] turnover adds to the risk, and strategy could be in flux" with the departure of Hertz's chief executive, the analysts said.

Hertz said Friday that Stephen Scherr, a retired Goldman Sachs Group Inc. (GS) banker, is stepping down at the end of the month after serving just over two years as the rental-car company's CEO. Scherr will be replaced by Gil West, a veteran of Delta Airlines Inc. (DAL) and General Motors Co. (GM).

"We'd like to see more stability, as the most significant risk is management being unable to execute on its strategy," the BofA analysts said. "The rental market is also highly competitive and volatile."

On the plus column, travel trends support "solid" volume growth for Hertz through 2026, and rental-car pricing shows signs of stabilizing, they said.

Prices could be poised for a correction toward prepandemic levels, but no "full reversion" is expected, as fundamentals offer near-term support, the analysts said.

"The stabilization in prices should be further supported by seasonally stronger demand in [the second quarter and third quarter] coupled with solid growth in travel spending," they said.

Hertz's stock has struggled recently, falling 31% so far this year and 53% in the last 12 months, compared with advances of around 8% and 32%, respectively, for the S&P 500 index SPX.

The rental-car company has pivoted from its bet on electric vehicles, saying it would shrink its EV fleet by about a third as customer demand didn't live up to expectations and the vehicles were too costly to repair.

-Claudia Assis

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03-19-24 1237ET

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