On Thursday, BofA Securities revised its stock price target for Hertz Global (NASDAQ:HTZ), reducing it to $2.50 from the previous $3.00, while retaining an Underperform rating on the stock.
The adjustment reflects a cautious outlook on the rental car industry's earnings recovery, as the firm anticipates a prolonged period before normalization due to sustained discrepancies between new and used vehicle prices, which are expected to drive higher vehicle depreciation costs. Moreover, macroeconomic risks are seen as potential factors that could impact rental car volumes and pricing.
BofA Securities has shifted its valuation approach for both Avis Budget (NASDAQ:CAR) and Hertz Global, basing it on normalized EBITDA estimates rather than the previously used 2025E EBITDA. The firm suggests that the stocks are likely to trade at multiples of 6-8x EV/EBITDA over the business cycle.
Avis Budget is currently valued at 8x, reflecting its superior operating performance, while Hertz is valued at 6.5x, taking into consideration its higher leverage, tightening liquidity, and a recently more volatile earnings profile.
The price objective for Avis Budget remains unchanged at $155, indicating a continued Buy rating for the company. In contrast, the price objective adjustment for Hertz Global reflects the firm's view of the challenges it faces within the sector. The Underperform rating on Hertz suggests that the firm's analysts remain skeptical about the company's near-term prospects in the context of the broader industry's financial dynamics and market risks.
In other recent news, Hertz Global Holdings (OTC:HTZGQ) is contemplating a sale of at least $700 million in secured debt along with an offering of convertible notes. This move is part of an effort to fortify its financial position following a quarterly loss of $1.28 per share, which was notably higher than the expected 44-cent loss. The company has also appointed Scott Haralson, former CFO of Spirit Airlines (NYSE:SAVE), as the new Chief Financial Officer, replacing Alexandra Brooks.
Recent assessments by BofA Securities maintain an Underperform rating on Hertz with a steady price target of $3.00. The firm's evaluation suggests a significant EBITDA loss of around $700 million in 2024 due to high fleet costs. Meanwhile, Deutsche Bank (ETR:DBKGn) has revised its outlook on Hertz, reducing its price target to $4.80 from $6 while maintaining a Hold rating.
Moreover, BofA Securities has downgraded Hertz's stock from Neutral to Underperform after the company's first quarter results for 2024 missed estimates. The company reported adjusted corporate EBITDA of negative $567 million, leading to a decrease in the price target from the previous $9.00 to $3.00. These are among the recent developments for Hertz Global Holdings.
InvestingPro Insights
As investors digest the revised price target from BofA Securities for Hertz Global (NASDAQ:HTZ), it's worth considering some additional metrics and insights from InvestingPro. Hertz currently operates with a significant debt burden and analysts have concerns about the company's ability to make interest payments on its debt. This is reflected in the company's low Price / Book multiple of 0.39, as of the last twelve months ending Q1 2024. Moreover, Hertz's management has been aggressively buying back shares, a move that may signal confidence in the company's future despite the challenges outlined by BofA Securities.
From a financial standpoint, Hertz's market capitalization stands at approximately $1.09 billion, with a P/E ratio of 16.61. Still, when adjusting for the last twelve months as of Q1 2024, the P/E ratio drops significantly to 4.65, which could indicate undervaluation relative to earnings. While the company's revenue grew by 5.4% over the last twelve months, the EBITDA growth plummeted by 85.75%, highlighting potential operational concerns.
Investors looking for a deeper dive into Hertz's financial health and future prospects can explore further with InvestingPro, which offers additional InvestingPro Tips beyond the two highlighted here. There are currently 21 more tips available for Hertz on InvestingPro. To gain access to these insights and help make more informed investment decisions, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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