On Tuesday, Goldman Sachs (NYSE:GS) reiterated its Sell rating on Hertz Global (NASDAQ:HTZ) stock, maintaining the $7.00 price target. This stance came after Hertz Global filed an amendment to increase its First Lien covenants through the first quarter of 2025, introducing more stringent conditions on restricted payments and permitted investments.
The amendment allows for an increase in the consolidated first lien leverage ratio to 5.0X for the second and third quarters of 2024, up from the previous 3.5X, and to 4.75X for the fourth quarter of 2024 and the first quarter of 2025, up from 3.0X. Additionally, Hertz must now adhere to a minimum liquidity covenant of $400 million for the second and third quarters of 2024, which increases to $500 million for the later periods.
In recent days, investor concerns have centered around Hertz's First Lien Covenant and the ABS equity cushion. The recent amendment resolves uncertainties around the First Lien Covenant in the short term. However, Goldman Sachs interprets the need for higher covenant triggers as a signal of potential negative outcomes for Hertz's stock.
The firm identifies three main reasons for concern: the implication of a downside to Street numbers, operational restrictions imposed by the terms, and the possibility of Hertz needing to fund any shortfall with equity in adverse scenarios.
InvestingPro Insights
As Hertz Global (NASDAQ:HTZ) navigates through its financial restructuring, real-time data from InvestingPro provides a deeper insight into the company's current market position. Hertz's adjusted market capitalization stands at approximately $1.82 billion, with a notably low Price/Earnings (P/E) Ratio of 3.63 as of the last twelve months ending Q4 2023. This could signal that the stock is undervalued relative to earnings. Moreover, the company's Price/Book ratio during the same period is 0.51, reinforcing the perspective that the stock might be trading at a discount to its net asset value.
InvestingPro Tips suggest that despite the aggressive share buybacks by management and indications that the stock is in oversold territory, Hertz is facing significant challenges. The company operates with a substantial debt burden and is quickly burning through cash. Additionally, there is a concern that short-term obligations exceed liquid assets, and analysts have revised their earnings downwards for the upcoming period. For readers seeking to dive deeper into Hertz's financial health and future outlook, InvestingPro offers more than 15 additional tips on their platform.
To gain full access to these insights and more, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. The provided data and tips can help investors make more informed decisions amid Hertz's current financial adjustments and market performance.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.