On Thursday, Goldman Sachs adjusted its stance on Hertz Global (NASDAQ:HTZ) stock, downgrading the car rental company from Neutral to Sell and lowering the price target to $7.00 from the previous $8.00. The investment firm cited several challenges that Hertz might face in the near future, including pricing, cost, and depreciation per unit (DPU) pressures that have not yet been fully accounted for in the stock's current valuation.
The analyst from Goldman Sachs expressed concerns that the efforts to turn the company around may be more prolonged and costly than initially anticipated. This is particularly relevant given the observation that Hertz's fleet is around 50% older than it was before the pandemic, which could impact the company's ability to stabilize pricing effectively.
Goldman Sachs' revised outlook suggests that Hertz's financial trends could deteriorate before any improvement is seen, with the projection of no free cash flow (FCF) generation in approximately 2024. This aspect is expected to remain under close scrutiny by investors, as cash flow is a critical measure of a company's financial health and ability to sustain operations.
Despite acknowledging the potential for significant improvements at Hertz over the long term, Goldman Sachs does not foresee any immediate catalysts that could drive the stock's performance over the next 12 months. The downgrade to Sell reflects this cautious stance, with the investment firm waiting for further evidence of progress before reconsidering its position.
InvestingPro Insights
InvestingPro data provides a more detailed look into Hertz Global's (NASDAQ:HTZ) financial health. With a market capitalization of $2.33 billion and a notably low price-to-earnings (P/E) ratio of 4.08, Hertz appears to be trading at a low earnings multiple, which could suggest undervaluation relative to earnings. Additionally, the company has a P/E ratio of 4.7 when adjusted for the last twelve months as of Q4 2023, which aligns with the low earnings multiple noted by an InvestingPro Tip.
Despite the challenges highlighted by Goldman Sachs, Hertz has experienced a revenue growth of 7.9% over the last twelve months as of Q4 2023, with a gross profit margin of 20.03%. This indicates some operational efficiency despite the market's broader concerns. However, the company's EBITDA has decreased significantly by 59.05% in the same period, reflecting some of the pressures mentioned by Goldman Sachs.
InvestingPro Tips further reveal that Hertz operates with a significant debt burden and has been aggressively buying back shares. With the next earnings date on April 25, 2024, investors will be keen to see how these factors play out in the company's financials. For those looking to delve deeper into Hertz's financial metrics and strategic moves, there are an additional 14 InvestingPro Tips available, which can be accessed with a special offer: use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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