Is Hertz (HTZ) stock a good buy?
In this article, we review Hertz stock, to determine if it’s a good buy, sell, or hold.
Hertz is a rental car company founded in 1918, headquartered in Estero, FL, and located in 160 countries.
Table of Contents
- Tykr Rating
- Hertz Company History
- Hertz Business Model
- Hertz News
- Hertz Competition
- Hertz 4Ms
- Hertz Financials
- Is Hertz stock a good buy?
- Summary: On Sale
- Score: 95/100
- MOS: 90%
- Share Price: $18
- Sticker Price: $90
- In 1918, Hertz was originally founded in Chicago under the name Rent-a-Car Inc by Walter L. Jacobs. The small operation began renting out dozens of Ford Model T cars. Within five years, the fleet expanded to 600 vehicles and generated $1M per year in revenue.
- In 1923, John D. Hertz, owner of Yellow Truck and Coach Manufacturing Company, developed an interest in Rent-a-Car and decided to buy the company and rename it Hertz Drive-Ur-Self System. Jacobs continued to operate as President and COO of Hertz until 1961.
- In 1926, Hertz sold the rental car brand to General Motors.
- In 1926, GM released the first rental car charge card.
- In 1933, Hertz introduced the first one-way rental plan.
- In 1938, Hertz expanded to Canada.
- In 1943, GM purchased the rest of Yellow Truck and Coach Manufacturing Company.
- In 1950, Hertz expanded to France.
- In 1953, John Hertz repurchased the brand back from GM.
- In 1954, Hertz went public on the New York Stock Exchange.
- In 1954, Hertz bought New York-based truck leasing company, Metropolitan Distributors which included a fleet of 4,000 trucks. This acquisition increased the fleet to 15,500 trucks and 12,900 passenger cars.
- In 1954, Hertz reached a $7M market cap.
- In 1961, Hertz expanded to South America.
- In 1965, Hertz reached a $100M market cap.
- In 1985, Hertz bought UAL Corporation, which was also known as Allegis Corporation, for a cash deal of $587M. The acquisition expanded Hertz’s fleet to 400,000 cars and trucks in 120 countries.
- In 1987, Ford bought Hertz for $1.3B and Hertz relocated its headquarters to New Jersey.
- In 2002, Hertz became the first international car rental company to open in China.
- In 2005, Hertz produced about 10% of Ford’s overall pre-tax profit. In that same year, Ford decided it would sell Hertz so Ford could focus on selling cars and trucks. Private Equity firm, Clayton, Dubilier & Rice, The Carlyle Group, and Merrill Lynch Global Private Equity agreed to purchase all shares of common stock in Hertz for $15B.
- In 2007, Hertz launched Simply Wheelz which allowed online reservations for 6 different vehicles at self-service kiosks.
- In 2009, Simply Wheelz was rebranded to Advantage Rent-a-Car.
- In 2009, Hertz acquired British Car Auctions (BCA) for £390 million.
- In 2012, Hertz acquired Dollar Thrifty Automotive Group for $2.3B. This expanded Hertz footprint to 10,400 locations in 150 countries.
- In 2013, Hertz began partnering with China’s largest car rental company, China Auto Rental.
- In 2013, Hertz relocated its global headquarters to Estero, FL. The relocation to Southwest Florida was influenced by the state’s travel and tourism industry, as well as the proximity to Orlando and Miami.
- In 2017, Kathryn V. Marinello, former CEO of Stream Global Services, was appointed President and CEO.
- On April 30th, 2020, Hertz announced it had missed lease payments on its fleet and was seeking support from lenders to avoid bankruptcy. Marinello resigned as CEO on May 18th, 2020 and Paul Stone became the new CEO. On May 22nd, 2020, Hertz filed for bankruptcy because it did not reach an agreement with top lenders. Carl Icahn held 39% of Hertz’s shares when the company filed for bankruptcy and he invested $2.3B between 2014 and 2020.
- On June 11th, 2020, Hertz announced it was seeking to raise $1B in new equity with a disclaimer there is a risk the common stock could ultimately be worthless. The Wall Street Journal characterized the event as a seemingly unprecedented move for a large bankrupt company eager to capitalize on the market. The share price went from $.59 to $5.50 and was one of the most heavily traded stocks on Robinhood. Hertz sold $29M in stock before the SEC halted further sales and the stock was delisted from the NYSE in October of 2020.
- In October of 2021, Mark Fields was named interim CEO.
- In 2021, Hertz announced it would buy 100,000 Teslas.
- In November of 2021, Hertz went public again on the Nasdaq.
- In February of 2022, Stephen Scherr was named permanent CEO.
How does Hertz make money?
Rentals – Car rental companies like Hertz receive a bulk discount when buying cars for their fleet. This reduces the overall size of the auto loans but it still adds a lot of debt to the business. Car rental companies try to make sure 80% of their fleet is being rented at any given time which ensures revenue generation is burning down the debt and generating a profit.
Add-Ons – Where car rental companies really make their profits is through add-ons, which can be really annoying for travelers. Some of these add-ons include:
- Pay for the full tank of gas upfront so you don’t have to worry about filling up before you drop the car off. If you fall victim to this scam, you may pay 50% more for gas.
- Pay for added auto insurance. In most cases, your normal auto insurance will cover you so before you travel, make sure you call your auto insurance company to confirm.
- Pay for tolls upfront. If you are renting a car and plan on crossing borders, you can pay for a transponder which can cost as much as $20 per day. You are better off paying the tolls yourself which may cost $2 – 4$ each time you cross a border.
Auto Sales – When cars reach between 20,000 and 25,000 miles, rental companies will sell those cars direct to consumers, dealerships, or other companies.
This article from seekingalpha.com states that Hertz has experienced a resurgence, however, it still carries $13B in debt, given the nature of the car rental business model. The article goes on to say the purchase of Teslas is helping the company increase profitability because they charge more to rent EVs and the Tesla brand gives Hertz a competitive position.
This article from zacks.com states that Hertz has moved to a strong buy due to the increasing EPS. On July 28th, the estimated EPS was $1.15 and the reported came in at $1.22, a 6% surprise. The big surprise came on August 9, 2021, when the estimate was $.70 and the report came in at $2.55, a 264% surprise.
This article from wired.com states that car rental prices have increased because inventory has decreased. When Covid-19 hit in 2020, most car rental companies sold off a considerable volume of cars to remove debt. For example, Hertz had 700,000 vehicles in 2019 and now has 424,000 vehicles in 2022. Now that Covid-19 has subsided, people are traveling again which means more cars are being rented. Unfortunately, most car rental companies can’t keep up. If you don’t book a rental car far enough in advance, you may not be able to rent a car on your next vacation.
This article from businessinsider.com states that high inflation is not slowing down travel spending. In fact, travel is the #1 item people are spending on. After cases of Covid-19 have declined, people are highly motivated to get out after being quarantined for close to two years. The phrase “revenge travel” has been coined which means people are making up for vacations lost during the pandemic.
This video from CNBC shows Jim Cramer interviewing Hertz CEO Stephen Scherr. Scherr states that non-travelers are actually renting Tesla’s before they decide to buy one which is creating a consistent stream of revenue on EVs alone.
This video from Bloomberg interviews Stephen Scherr about the purchase of 65,000 Polestar EVs. The objective is to diversify the fleet around the globe. Polestar is a Swedish auto manufacturer that was spun out of Volvo.
- Summary: On Sale
- Score: 95/100
- MOS: 90%
- Share Price: $19
- Sticker Price: $97
- Revenue: $7.3B
Avis Budget Group (CAR)
- Summary: On Sale
- Score: 67/100
- MOS: 64%
- Share Price: $164
- Sticker Price: $347
- Revenue: $9.1B
Hertz does not have a lot of competition at the public level but the private level is saturated with companies including Enterprise, Alamo, Nationalcar, Dollar, Thrifty, Carrentals, Europcar, Sixt, and Rentalcars.
MOS: The financials are outstanding. With a score of 95 and MOS of 90%, this stock shows some solid upside potential. If you take a closer look at the financials, it’s important to point out the debt of $13B is lower than the debt of $18B in 2019 and $16B in 2018.
Meaning: It’s exciting to see people are not slowing down travel expenditures even if inflation and travel costs have increased. It’s also important to highlight the investment in Teslas. People, who aren’t interested in travel, are renting a Tesla as a means to “try before you buy” which is creating a steady stream of revenue.
Moat: The issue with Hertz is the competition. There are a lot of private companies to pay close attention to. The investment in the 100,000 Tesla’s has provided Hertz with a competitive advantage but if other rental companies follow the same trend, Hertz’s revenue could see a hit.
Management: Stephen Scherr has served as CEO of Hertz since February of 2022. Prior to Hertz, he worked at Goldman Sachs for 28 years in roles including CFO, CSO, COO of the Investment Banking Division, and other roles in Communications, Media, Entertainment, and Emerging Markets. The Glassdoor rating of Hertz is a 3.2/5.0 and the previous CEO approval of Paul Stone was 57%. Both scores are far below what we like to see in a company. Since Scherr is so new to the role at Hertz, we can’t place criticisms quite yet. My thoughts are Scherr has been put in place to help get the company’s financials back on track, not necessarily establish a long-term leadership position where he mentors and grooms his fellow colleagues.
Now let’s take a look at the financials. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.
Revenue (Found on the Income Statement)
- 2018: $9.5B
- 2019: $9.7B
- 2020: $5.2B
- 2021: $7.3B
- The 2021 revenue is a great improvement from 2020 which is a great sign.
Net Income (Found on the Income Statement)
- 2018: -$225M
- 2019: -$58M
- 2020: -$1.7B
- 2021: $366M
- The net income has dramatically increased in 2021 which is a great sign.
EPS (Found on the Income Statement)
- 2018: -2.68
- 2019: -.49
- 2020: -11.44
- 2021: 2.44
- EPS has also dramatically increased.
Free Cash Flow (Found on the Cash Flow Statement)
- 2018: -$10B
- 2019: -$11B
- 2020: -$4B
- 2021: -$5B
- Free Cash Flow has improved since 2019 and 2018 but it’s still in the negative. We want to see this number move positive.
Total Assets (Found on the Balance Sheet)
- 2018: $21.3B
- 2019: $24.6B
- 2020: $16.9B
- 2021: $19.7B
- Total Assets have increased since 2020 which is a good sign.
Total Liabilities (Found on the Balance Sheet)
- 2018: $20.2B
- 2019: $22.7B
- 2020: $16.8B
- 2021: $16.8B
- Total Liabilities have declined since 2019 which is a good sign.
Total Debt (Found on the Balance Sheet)
- 2018: $16.2B
- 2019: $18.9B
- 2020: $7.9B
- 2021: $12.4B
- Total Debt has increased in 2021 because of the purchase of Tesla and Polestar EVs.
Total Equity (Found on the Balance Sheet)
- 2018: $1B
- 2019: $1.7B
- 2020: $56M
- 2021: $2.9B
- Total Equity has dramatically increased in 2021.
The MOS and Meaning look great. The financials show this company is back on the right track and the acquisition of Tesla and Polestar EVs will provide consumers with a significant opportunity to rent EVs for travel and test EVs before they buy. The two issues on this business are the Moat and Management. There are a lot of competitors in this space that could take market share away from Hertz and with Scherr as CEO, I don’t know how long he will lead the company. His past history at Goldman Sachs tells us he’s here to clean up the books not necessarily improve the culture.
If you’re looking for a stock that supports the travel industry, this stock may be a better buy than cruise lines and hotels. However, this may not be a long-term hold, mainly due to the competition. If you do buy the stock, keep a close eye on it and be ready to sell it when it turns to Overpriced.
The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.
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