On Tuesday, Morgan Stanley (NYSE:MS) reaffirmed its confidence in Hertz Global (NASDAQ:HTZ), maintaining an Overweight rating and a price target of $8.00 for the car rental company's shares. The firm's evaluation follows Hertz Global's recent second-quarter guidance update and financing activities.
Morgan Stanley's position is based on the belief that the future trajectory of Hertz's stock will largely hinge on the company's ability to effectively manage its fleet and revenue. The firm acknowledges the importance of these factors in the long-term performance of the stock.
The Overweight rating suggests that Morgan Stanley views Hertz Global's stock as a better value compared to other companies in the industry, based on their analysis. The $8.00 price target indicates the firm's expectation of the potential share price over a certain period, reflecting their confidence in the company's prospects.
Hertz Global's second-quarter guidance and recent financing actions have been critical inputs for Morgan Stanley's earnings model, prompting the firm to adjust their expectations and reiterate their stance on the stock.
Investors and market watchers often look to such evaluations from financial institutions like Morgan Stanley to gauge the market sentiment and future performance of companies like Hertz Global. The maintained Overweight rating and price target are indicative of Morgan Stanley's current outlook on the company, based on the latest available information.
In other recent news, Hertz Global has been facing a series of financial and operational challenges. The company is grappling with increased depreciation expenses due to an aggressive fleet update, which involves selling 19,000 out of 30,000 electric vehicles (EVs) by mid-2024. Despite these cost challenges, highlighted by Oppenheimer in its maintained Perform rating, Hertz anticipates steady or up to 1% year-over-year growth in revenue per day for the third and fourth quarters of 2024.
In an effort to boost liquidity, Hertz has disclosed plans to issue $750 million in debt through its subsidiary, The Hertz Corporation. This includes $500 million of First Lien Senior Secured Notes and $250 million of Exchangeable Senior Second-Lien Secured PIK Notes, both due in 2029. The proceeds are intended for reducing Hertz Corp.'s $2.0 billion revolving credit facility.
As part of its financial shakeup, Hertz is also considering a sale of at least $700 million in secured debt, according to a Bloomberg News report. This strategy follows the recent appointment of Scott Haralson, the former CFO of Spirit Airlines (NYSE:SAVE), as Hertz's new finance chief.
However, Hertz's financial outlook continues to raise concerns among analysts. BofA Securities maintained its Underperform rating on Hertz with a steady price target of $3.00, following a comprehensive liquidity analysis. The firm anticipates that Hertz could face a significant EBITDA loss of approximately $700 million in 2024.
InvestingPro Insights
For investors considering Morgan Stanley's positive outlook on Hertz Global, current metrics from InvestingPro provide a broader picture of the company's financial health. Hertz operates with a significant debt burden and analysts have raised concerns about its ability to make interest payments. Despite these challenges, management's aggressive share buyback strategy and a low Price / Book multiple, currently at 0.36, could signal undervaluation to opportunistic investors.
The company's market capitalization stands at approximately $1.1 billion, with a notably low Price/Earnings (P/E) ratio of 6.3, which further adjusts down to 4.38 over the last twelve months as of Q1 2024. This, coupled with a modest revenue growth of 5.4% during the same period, suggests a potential for upside if the company can navigate its debt and profitability concerns effectively. Interestingly, Hertz has been profitable over the last twelve months, which may provide some reassurance amidst the volatility.
For those seeking more in-depth analysis, there are additional InvestingPro Tips available, which can be accessed with a subscription. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain insights into Hertz's cash flow, gross profit margins, and short-term obligations. With 20 more InvestingPro Tips available, investors can make a more informed decision on whether Hertz Global aligns with their investment strategy.
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