On Monday, Deutsche Bank adjusted its outlook on Hertz Global (NASDAQ:HTZ), reducing the car rental company's price target to $4.80 from $6, while maintaining a Hold rating on the stock. The revision follows Hertz's first-quarter earnings call last week, where the new CEO, Gil West, discussed the company's plans and strategies.
The bank's analyst pointed out that while the CEO's remarks during the earnings call were promising, the actual implementation of Hertz's turnaround initiatives remains to be seen. The analyst highlighted the challenge in balancing the growth of pricing and fleet against the need to reduce expenses, a balancing act not typical in the car rental industry.
Hertz's potential to improve its revenue per day (RPD) through fleet updates, especially within its Dollar Thrifty brand, was acknowledged. However, the analyst expressed reservations about the company's ability to lower fleet costs to a point where it could achieve the EBITDA margins it had in 2019. The ongoing concerns about the valuation of Hertz's electric vehicle (EV) fleet and the company's ability to source internal combustion engine (ICE) vehicles from manufacturers remain.
The bank also noted that Hertz had received an extension on its corporate debt covenants into early 2025, which may keep investor skepticism high regarding the company's ability to generate positive free cash flow given its elevated leverage.
The analyst concluded that the reduced price target reflects higher projected net debt balances by the end of 2025, despite an increased EBITDA forecast for the same year. The current stance of Deutsche Bank on Hertz reflects low conviction in forward earnings projections and a lack of identified catalysts to attract new investment into the stock.
InvestingPro Insights
As Hertz Global (NASDAQ:HTZ) navigates through its strategic turnaround, real-time data from InvestingPro offers a snapshot of the company's current financial health. The car rental giant is operating under a significant debt burden, with a market capitalization of $1.35 billion and a Price/Earnings (P/E) Ratio of 7.58, which adjusts to a more favorable 5.78 when considering the last twelve months as of Q1 2024. This lower adjusted P/E ratio could be attractive to value investors seeking underpriced stocks.
InvestingPro Tips highlight that management has been proactively buying back shares, which could be a signal of their confidence in the company's future. However, it's also noted that Hertz may face difficulties in making interest payments on its debt, a concern that is echoed by the company's recent extension on its corporate debt covenants. Additionally, with a Price/Book multiple at 0.48 for the last twelve months as of Q1 2024, the stock is trading at a valuation that could interest investors looking for stocks that are potentially undervalued relative to their assets.
For readers interested in a deeper dive into Hertz's financials and strategic positioning, InvestingPro provides additional tips – there are 24 more tips available that could help in making a more informed investment decision. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and gain access to these valuable insights.
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