Invest in Hertz as a Contrarian Play? Not Right Now, Says Analyst
That former rental car giant Hertz (HTZ) is a company in turmoil will come as a surprise to no one. The company was already riddled with debt before the pandemic’s onset, and now it is in the midst of the bankruptcy process, after the coronavirus’ destruction of the travel industry has left it in tatters. But the bad news keeps piling up and it appears management are jumping out of a car seemingly on the road to nowhere.
Last week, Hertz announced that CFO Jamere Jackson has resigned to move on to pastures a new and will be replaced by the company’s former Chief Accounting Officer and Controller.
For Deutsche Bank analyst Chris Woronka, the news is hardly surprising. The analyst expects more departures while the company’s “restructuring process carries on and various roles are redefined, created, or eliminated.”
Far more pertinent for Hertz’ future, Woronka argues, is the recent agreement with ABS creditors, which stated the company will sell 183,000 cars between June and the end of the year in order to pay $650 million to the lenders who financed its rental car fleet.
Woronka estimates, that “as long as the residual market remains cooperative over the period, HTZ could reduce the size of its ABS balance by at least 51% while maintaining a loan to value of approximately 90% (or less).”
“Ultimately, however,” the analyst added, “We still see considerable risks to the HTZ recovery story, and we don't anticipate having a meaningfully clearer picture until the fall travel season unfolds and we get additional data points on the sustainability of recent strength in the used car market.”
Accordingly, Woronka reduced his 2020 adjusted EBITDA estimate by $355 million to $1.236 billion and expects a 7% increase in U.S. fleet costs (per unit/per month), “with a flattish result in the second half of the year.”
Woronka’s rating remains a Hold, although alongside the estimate reduction, the price target gets a trim, too. The figure comes down from $3 to $2. Nevertheless, the very risk tolerant investor could be pocketing a 38% gain, should Woronka’s target be met over the next 12 months. (To watch Woronka’s track record, click here)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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