Shares of rental car giant Hertz (HTZ - Free Report) crashed on Thursday after Morgan Stanley (MS - Free Report) downgraded the company’s stock.
In a note to clients, Morgan Stanley's Adam Jonas demoted Hertz from “equal weight” to “underweight.” The firm lowered its Hertz price target to $14 a share, which is almost $10 below Wednesday’s closing price.
Hertz stock price had skyrocketed from under $9 a share in June to rest at $23.93 per share on Wednesday. This massive uptick in stock price is part of the reason for Morgan Stanley’s downgrade. The analysts wrote that Hertz shares experienced a “dramatic re-rating over the past 3 months.”
“The core of [their] downgrade is valuation,” Jonas wrote. “Destructive weather events present a material short-term increase to pricing but we believe this is more than in the share price… Structural issues with the car rental model remain.”
The car rental company’s stock had climbed well before Hurricanes Harvey and Irma caused destruction in Texas and Florida, but the tropical storms did help send shares of Hertz up even higher.
Now, analysts at Morgan Stanley are pumping the breaks on the stock, citing previously powerful sell-off incentives, such as low used car prices and competition from ride-sharing services like Uber.
Shares of Hertz tanked over 10.34% on Thursday morning after the downgrade. Morgan Stanley’s new “underweight” evaluation for the Estero, Florida-based car rental agency helped send shares of fellow car rental conglomerate, Avis Budget Group (CAR - Free Report) , lower as well.
Shares of Avis sunk by more than 5.55%, after experiencing a similarly massive climb since the start of summer.
In the past 60 days, Hertzhas received three downward earnings estimate revisions for this quarter, next quarter, the current full-year, and its next fiscal year. The Zacks Consensus Estimate calls for a 17.88% EPS dip this quarter and a massive 401.37% drop off for the full year.
Our consensus estimate currently calls for $2.54 billion worth of sales this quarter, which would mark a 0.72% year-over-year decline. We also project full-year revenues to fall by 1.53%. Hertzis currently a Zacks Rank #5 (Strong Sell).
Avis’ projected EPS growth for the current quarter sits at 21.59%, but full year estimates call for a 10.24% decline. Despite positive revenue projections for this quarter and next quarter, we’ve seen two negative revisions to Avis’ full-year earnings estimates within the past 60 days, as well as two downgrades for the next year. Avis is currently a Zacks Rank #4 (Sell).
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