On Friday, JPMorgan (NYSE:JPM) revised its price target on Hertz Global (NASDAQ:HTZ) shares, dropping it to $5.00 from the previous $6.00, while maintaining a Neutral rating on the stock. The adjustment comes as the rental car company grapples with the aftermath of what the firm describes as a "failed electric vehicle strategy."
The analyst from JPMorgan highlighted that Hertz has the potential to boost earnings through new partnerships with various companies, including American Express (NYSE:AXP) Global Business Travel, Tripadvisor, Uber (NYSE:UBER), and Carvana. These opportunities for growth are seen as positive for the company's future earnings.
However, the company's challenges with its electric vehicle initiative have resulted in significant losses, estimated by JPMorgan to be over $500 million.
These losses are attributed to factors such as the depreciating value of used electric vehicles, heightened collision repair costs, and reduced utilization due to a shortage of spare parts for repairing damaged Teslas.
Despite these setbacks, JPMorgan believes Hertz remains an affordable option based on normalized earnings. Nonetheless, the firm does not anticipate Hertz achieving normalized earnings until after 2025.
The analyst also forecasts that 2024 will likely be a transitional year for Hertz, with an expected decline in underlying EBITDA, particularly after accounting for a one-time charge in the fourth quarter of 2023.
The bank's analysis suggests that Hertz will not generate positive free cash flow in 2024 and 2025. This financial strain could hinder the company's ability to take advantage of its currently lower share price through repurchases. The outlook presented by JPMorgan reflects caution regarding Hertz's near-term financial performance and strategic positioning.
InvestingPro Insights
As JPMorgan adjusts its outlook on Hertz Global, real-time data and insights can offer additional context for investors considering the company's stock. According to InvestingPro, Hertz operates with a considerable debt burden and analysts have recently revised their earnings expectations downwards for the upcoming period. This aligns with JPMorgan's concerns about the company's financial performance in the near term.
InvestingPro data reveals a market capitalization of $1.15 billion for Hertz, with a negative P/E ratio indicating that the company is not currently profitable. Revenue growth over the last twelve months stands at 3.38%, but with a quarterly decline of -3.45%, reflecting some of the challenges mentioned by JPMorgan. Additionally, the gross profit margin for the same period is low at 3.15%, further underscoring the company's financial difficulties.
Investors should note that Hertz's stock price has experienced significant volatility, with a one-year total return of -76.77%, which may be attributed to the failed electric vehicle strategy and other operational challenges. Despite this, Hertz's management has been aggressively buying back shares, a move that could be seen as a sign of confidence in the company's future prospects or an attempt to support the stock price.
For those seeking a deeper dive into Hertz's financial health and future outlook, there are over 10 additional InvestingPro Tips available on the platform, providing a comprehensive analysis of the company's valuation, cash flow, and profitability metrics.
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