Hertz's stock is having an awful week, and BofA adds to investors' misery

By Tomi Kilgore

BofA's John Babcock turns bearish, sees stock losing more than 30% as liquidity is an increasing concern

Shares of Hertz Global Holdings Inc. continued their dive Friday toward yet another record low, after BofA Securities added to the rental-car company's woes by recommending investors sell.

The stock (HTZ) sank 5.2% in afternoon trading, toward its fourth record-low close this week.

It has plunged 25.7% this week, which would be the biggest weekly selloff since emerging from bankruptcy in July 2021. The lowlight of the decline was Thursday's 19.3% tumble after the company reported a much wider-than-expected quarterly loss.

BofA analyst John Babcock downgraded the stock to underperform from neutral. He slashed his price target to $3 from $9, with the new target implying about 32% downside from current levels.

One of the biggest concerns resulting from Hertz's earnings report was the costs associated with refreshing its rental-car fleet, as the company boosted the number of electric vehicles it planned to sell by 50%, to 30,000 EVs this year.

Babcock said the report showed that the troubles with the fleet, driven by higher costs, are "unlikely to meaningfully subside in the near term." He noted that Hertz's fleet is older than its peers, and needs to be refreshed at a bad time for the used-car market.

"Liquidity is also an increasing concern among investors as [Hertz] has an older fleet that will need to be refreshed at a time when used vehicles are dropping and new vehicle prices are softening only modestly," Babcock wrote in a note to clients. "The company has multiple levers to manage its liquidity, but we expect the company is likely to end up with more leverage."

The company said in its first-quarter filing that it had $465 million of cash and cash equivalents as of March 31, down from $764 million at the end of 2023.

The company said $370 million in cash provided from operating activities during the quarter was offset by $703 million in investing activities, which was primarily related to purchases and sales of vehicles.

The company had also said it had total debt of $15.74 billion as of March 31, up from $15.69 billion as of Dec. 31.

What also makes Babcock worried about Hertz's stock is that given that Chief Executive Gil West just started in his role on April 1, there is uncertainty about the company's strategy going forward.

"We expect the company will share more on its strategy in the summer or early fall, but in the meantime investors are left guessing on the company's plans," Babcock said.

Hertz's stock has plummeted 57.3% year to date, while shares of rival Avis Budget Group Inc. (CAR) have dropped 43.1% and the S&P 500 index SPX has gained 7.2%.

-Tomi Kilgore

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04-26-24 1343ET

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