Hertz Global Holdings, Inc.HTZ is scheduled to release fourth-quarter 2016 results on Feb 27. The big question facing investors is, whether this car rental company will be able to deliver a positive earnings surprise in the quarter to be reported.
This quarter will mark Hertz's third earnings release as a stand-alone entity. In third-quarter 2016, the company posted a negative earnings surprise of 43.8%, which was preceded by a positive surprise of 36.7% in second-quarter 2016. A look at Hertz's earnings estimates revisions shows that the Zacks Consensus Estimate for the fourth-quarter and fiscal 2016 has been stable over the last 30 days.
Further, Hertz forms part of the Transportation sector. Per the latest Earnings Preview , total earnings for the sector are expected to slump 18.3%, though revenues are projected to improve 4.6%.
Hertz Global Holdings, Inc Price and EPS Surprise
Factors Influencing this Quarter
Hertz's results in the last quarter were hurt by lower-than-expected rental volumes as well as higher operating and administrative expenses. Further, a substantial depreciation adjustment for its rental vehicles in the third quarter contributed to the decline. Unfortunately, management anticipates fourth-quarter 2016 results to bear similar impacts as the third quarter, particularly higher depreciation rate adjustments on vehicles due to lower residual values. Consequently, the company lowered its domestic RAC revenue and earnings outlook for full-year 2016. Also, it expects the weak trends in its car rental business to continue throughout 2016 and impact results.
While these factors make us highly cautious of the upcoming results, the company's increased focus on cost reduction seems impressive. Incidentally, Hertz remains on track to reach its cost-reduction target of $350 million for 2016, despite the lag in the third quarter due to timing issues. Improved pricing trends in the U.S. also bode well.
However, given the aforementioned negative factors and unfavorable currency movements, we prefer to remain on the sidelines with regard to the upcoming results. Moreover, Hertz's stock price movement remains disappointing as the company has underperformed the Zacks categorized Transportation-Services industry in the past six months. Evidently, its shares have crashed 60.7% over the past six months compared with the industry's decline of 30%.
Our proven model does not conclusively show that Hertz is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:
Zacks ESP: Earnings ESP for Hertz is currently pegged at 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 50 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Zacks Rank: Hertz's Zacks Rank #3 increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks Poised to Beat Earnings Estimates
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Papa John's International, Inc. PZZA , expected to release earnings on Feb 21, currently has an Earnings ESP of +4.55% and a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .
Costco Wholesale Corporation COST , scheduled to report earnings on Mar 2, currently has an Earnings ESP of +0.74% and a Zacks Rank #3.
Dollar Tree, Inc. DLTR , expected to release earnings on Mar 7, currently has an Earnings ESP of +0.75% and a Zacks Rank #2.
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