TipRanks

Notifications

Who Benefits from Hertz’s Fleet Reduction? Analyst Weighs In

2020 has been a crazy year for car rental firm Hertz (HTZ). The year – so far – has included a bankruptcy, a probable NYSE delisting, and a stupefying post-bankruptcy share price run up of 1,200% that still can’t compensate for an overall 90% year-to-date decline. Add in an attempt to cash in on the surge with a market offering of $500 million-worth of new shares– and you have another wild addition to the annals of 2020.

The pandemic’s impact on the auto rental industry has brought Hertz to its knees, and the company is currently working through the bankruptcy process.

Hertz has now reached an agreement with its ABS lender to pay $650 million in lease payments before the year’s end. Additionally, Hertz will reduce its fleet by 182,521 vehicles between July and December. The agreement settles a lease contract dispute between Hertz and the lenders who financed its rental car fleet.

According to an 8-K filing, the vehicle sales should bring in $3.9 billion andwill be used to repay debt incurred under the ABS. On a brighter note, the bounce back in used vehicle prices will leave Hertz with a gain of $282 million.

If all goes according to plan, notes Deutsche Bank analyst Chris Woronka, Hertz will see out the year with its fleet reduced by 40% since the first quarter. Assuming Hertz will be unable to make any more purchases throughout 2020, Woronka believes the development is good news for one of its more stable rivals.

“In our opinion,” Woronka said, “This implies a potential market share opportunity for Avis (CAR), since we only expect that company to reduce its fleet by 25-30% in totality compared to the March quarter. We also remain of the view that the operational tumult at HTZ, including an abrupt change in CEO in mid-May, is likely to allow CAR to undertake more aggressive marketing campaigns aimed at targeted segments of its customer base.”

To this end, Woronka keeps a Hold rating on Hertz shares along with an optimistic $3 price target, implying hefty upside potential of 97%. (To watch Woronka’s track record, click here)

One other analyst has come to the same conclusion as Woronka. HTZ’s Hold consensus rating is based on 2 Holds, and the average price target of $3.26 implies possible upside of 119% over the next 12 months. (See Hertz’s stock-price forecast on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Marty Shtrubel
Marty Shtrubel was born in the UK, raised in Israel, and then headed back to London, where he made music and pursued a career in sound recording. After a move back to Tel Aviv, he set off on a new path and now works as a financial blogger at TipRanks.

Leave a Reply

Leave a Reply