Hertz Global Holdings, Inc. (NYSE:HTZ), the second largest US car rental group, has pulled its guidance in a recent 8K filing, and its usable fleet vehicles has also dropped appreciably to 79% in the second quarter.
However, the analysts at Gabelli believe the recent weakness in Hertz shares should be used as a buying opportunity as future business prospects remain bright.
Hertz’s disappointing Q2 updates
As reported earlier, Hertz Global Holdings, Inc. (NYSE:HTZ) announced in its regulatory filing with the SEC that its 2014 results would be ‘well below’ its earlier guidance, citing its inability to meet demand due to the automotive industry’s massive recalls and the cost of its accounting review. The company highlighted that the recalls of April and June as having “stepped up substantially” and that it “experienced a rapid, substantial increase in contracted bookings, further widening the gap between supply and demand.”
Of note, Hertz has yet to file financial results for the first and second quarters of this year and has delayed earnings calls no less than four times since it found accounting errors which keep the company from relying on the last three years of financial statements.
Afua Ahowi and team at Goldman Sachs in their research report dated August 20, 2014 point out that Hertz’s second quarter update was disappointing and marks the fourth consecutive quarter of underperformance as compared to Avis in the Rent A Car (RAC) segment and URI in the HERC segment.
The analysts at Goldman Sachs have lowered their 2014-2016 EPS estimates of Hertz to $1.52, $1.82 and $2.13, respecively, based on slower revenue growth and higher direct operating costs. However, the analysts have retained their 12-month price target at $29 as lower forecasts are offset by a roll-forward to 2015E from 2014E.
Gabelli assigns a ‘Buy’ rating
Colin Daddino of Gabelli notes Hertz Global Holdings, Inc. (NYSE:HTZ)’s usable fleet vehicles dropped to 79% in the second quarter from an already lower 81% in March 2014. However, the analyst notes such a phenomenon is not unique to Hertz, as Avis also called out.
The Gabelli analyst highlights that Hertz disclosed that it is experiencing issues with the installation and implementation of its ERP and counter sharing systems, which are affecting the anticipated synergy realization with Dollar Thrifty Automotive Group, Inc. (OTCMKTS:DTGF). The analyst notes the equipment rental business was also much weaker than anticipated.
Considering concerns over increase in U.S. rental car expenses, ERP/counter systems implementation and an increase in the equipment rental expenses, Daddino lowered the 2015 PMV to $36 per share, down from $44 per share. However, the analyst believes the stock holds potential as it trades at 20% discount to 2015.