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Hertz Falls on Withdrawal of 2014 Guidance, Icahn Buys Stake - Analyst Blog

The shares of global vehicle rental giant, Hertz Global Holdings, Inc. ( HTZ ) remained highly volatile throughout yesterday's trading session due to some positive as well as negative news, which captured market attention.

After hitting a new 52-week high of $31.61 on Aug 19, the company's shares opened at $27.55 on Aug 20, which was approximately 13% lower than the previous day's closing price of $31.56.

The plunge came after the company, in a Securities and Exchange Commission (SEC) filing on Tuesday evening, revealed that it is withdrawing its full-year 2014 guidance due to certain operational challenges and ongoing accounting review, which had earlier compelled management to postpone its first-quarter 2014 earnings announcement and related 10-Q filing.

The vehicle rental company yesterday revealed that its profit for 2014 will be much lower than its earlier projected guidance range of $1.70 to $2.00 per share. Apart from ongoing accounting review, Hertz Global has blamed continued weak performance at its construction-equipment rental business, higher U.S. fleet costs and massive auto recalls for the withdrawal of 2014 guidance. The company has been witnessing massive auto recalls since April this year which resulted in tight inventory in some places thereby failing to meet the demand.

However, later in the day, just before the market closed, the stock recovered almost 9% after the news of Carl C. Icahn's taking stake in Hertz Global spread across the market. But this did not prevent the stock to close in red. Shares closed at $30.33, 3.9% lower than the previous day's closing price of $31.56.

Icahn disclosed that it has accumulated 8.48% stake or 38.8 million shares in the company for a whopping $470.5 million. Furthermore, he announced that he will engage in talks with Hertz Global's management over the company's issues and also intends to ask for a board seat.

We believe that the ongoing operational challenges in Hertz Global has attracted the billionaire activist investor who always look for the companies which have high growth potential but are undervalued due to some operational issues. Icahn has stake in companies such as Apple Inc. ( AAPL ), eBay Inc. ( EBAY ) and Gannett Co., Inc. ( GCI ).

We believe that the intervention of the billionaire activist investor may bring the company back on the growth trajectory but looking at the operational challenges it will take a longer time to turnaround.

Hertz Global currently carries a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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