On Friday, Oppenheimer reiterated its Perform rating on Hertz Global (NASDAQ:HTZ), highlighting the rental car company's ongoing challenges throughout the year. The firm pointed out that Hertz is grappling with increased depreciation expenses, an extensive fleet update, and rising direct operating expenses (DOE).
The company has been proactive in refreshing its fleet, selling 19,000 out of 30,000 electric vehicles (EVs) by June 30, 2024. This aggressive turnover has led to a spike in depreciation per unit (DPU) expenses, which are expected to impact the company in the short term.
Despite the financial headwinds, Hertz is experiencing a robust demand environment. The company forecasts that revenue per day (RPD) will either remain steady or grow by up to 1% year-over-year (YoY) in the third and fourth quarters of 2024. This comes after a decline of 6.9% and 4.5% in the first and second quarters, respectively.
The anticipated stabilization and modest growth in RPD are attributed to the busy summer travel season, a smaller fleet size, and sensible pricing strategies adopted by competitors.
Hertz's focus on fleet efficiency is evident in its accelerated sale of electric vehicles, which is part of its business transformation strategy. The disposal of nearly two-thirds of its EVs by mid-2024 signifies a significant shift in its vehicle offerings. However, this transition also brings about higher DPU costs that the company must manage.
The Perform rating from Oppenheimer suggests a neutral stance, indicating that the firm sees neither a particularly favorable nor unfavorable investment opportunity in Hertz's stock at this time. The rating reflects a cautious approach due to the "substantial cost headwinds" and the extensive changes the company is undergoing.
In summary, while Hertz is expected to benefit from a solid demand and a potential increase in RPD in the latter half of 2024, Oppenheimer remains cautious. The financial firm advises staying on the sidelines, considering the significant expenses and the transformative phase that Hertz is currently navigating.
InvestingPro Insights
As Hertz Global (NASDAQ:HTZ) navigates through a transformative year, real-time data from InvestingPro provides a deeper understanding of the company's financial health and market performance. The company's market capitalization stands at a modest $1.07 billion, reflecting the challenges it faces. Additionally, Hertz trades at an attractive earnings multiple, with a P/E ratio of 6.3 and an even lower adjusted P/E ratio for the last twelve months as of Q1 2024 at 4.57. This indicates that the stock could be undervalued relative to its earnings potential.
Despite the low Price/Book multiple of 0.38, suggesting the stock might be undervalued in terms of its assets, Hertz operates with a significant debt burden, which is an important consideration for investors. Moreover, management's aggressive share buyback strategy demonstrates confidence in the company's future, even as it faces potential difficulties in covering interest payments on its debt. With a total of 21 additional InvestingPro Tips available, investors can gain a more comprehensive view of Hertz's financial situation and future outlook. For those interested in exploring these insights further, consider using coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
While Hertz's revenue has grown by 5.4% over the last twelve months as of Q1 2024, the company's stock price volatility remains high, with significant declines over the past year. This volatility and the company's weak gross profit margins of 12.56% could be of concern to potential investors. However, the company's proactive strategies and the expected stabilization in revenue per day may provide some optimism for the future. As Hertz continues to evolve, these real-time metrics and InvestingPro Tips can help investors make more informed decisions.
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