Back to top

Image: Bigstock

Bear of the Day: Hertz Global Holdings (HTZ)

Read MoreHide Full Article

An unanticipated issue can cause a turnaround plan to stall or even make the plan virtually impossible to implement.  This is what is happening to our Zacks Bear of the Day, Hertz Global Holdings (HTZ - Free Report) . In January HTZ hired their third CEO in less than three years, and now the new CEO is forced to deal with higher costs for new cars combined with a lower resale value of their used cars.  This new issue is causing their debt levels to skyrocket, and is pushing back their turnaround table to 2018 at the earliest.  

This Zacks Ranked #5 (Strong Sell) company operates car rental business. The company's product and services consists of Hertz Gold Plus Rewards, NeverLost(R), Carfirmations, Mobile Wi-Fi and unique vehicles offered through the Adrenaline, Dream, Green and Prestige Collections. It operates primarily in North America, Europe, Latin America, Asia, Australia, Africa, the Middle East and New Zealand. Hertz Global Holdings, Inc. is based in FL, United States.

Recent Earnings Results

In the company’s most recent earnings report, HTZ missed the Zacks consensus earnings estimate for the third consecutive quarter, but they did beat the Zacks consensus revenue estimate after missing the previous two quarters.  The company reported year over year losses in the following; U.S. Rental Car segment, total revenues fell -4%, with income from continuing operations before income taxes dropping by 500%.   On the International Rental Car Segment, total revenues were down -5%, and income from continuing operations before income taxes were down 400%.  
Management’s Take

According to Kathryn Marinello, President and CEO, “As previously outlined, we are executing on a turnaround plan that puts our customers at the center of everything we do.  Our goal is to strengthen the business to drive predictable, sustainable growth over the long term. While we are mindful of today's headwinds related to used car residual values, our commitment to investing in the business remains steadfast. In particular, we are placing significant emphasis on fleet quality, the customer experience, brand development and systems transformation. These investments are critical to rebuilding our position as a leader in the global rental car market. While our performance doesn't yet reflect our investments and may continue to be uneven, we are seeing signs of progress."

Price and Earnings Consensus Graph

As you can see below, HTZ’s stock price and future earnings estimates have been declining since the middle of 2016.

Declining Estimates

Due to the ballooning debt issues and the resale value decline of their used cars analysts have significantly reduced their earnings estimates over the past 30 days for Q2 17, Q3 17, FY 17 and FY 18.  Q2 17 plummeted from $0.34 to -$0.10, Q3 17 slipped from $1.68 to $1.57, FY 17 crashed from $0.55 to -$0.60, and FY 18 was almost cut in half from $1.55 to $0.79.

Bottom Line

Recently, management announced that they will offer $1 billion in second-lien secured notes which will be backed by domestic subsidiaries.  The company will use the proceeds to pay off $690 million of existing debt with different maturity dates.  The company still has a Moody’s bond rating of B2 (junk status).  While this is a step in the right direction, it will take several quarters for the company to see the benefits of this move, and other parts of their turnaround plan.

Therefore, if you are inclined to invest in the Transportation Services sector, you would be best served by looking into Matson Inc. (MATX - Free Report) , and or Northgate PLC both of which currently carry a Zacks Rank # 2 (Buy) rating.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Hertz Global Holdings, Inc. (HTZ) - free report >>

Matson, Inc. (MATX) - free report >>