A new CEO is expected to help this company execute a turnaround, giving investors an opportunity to buy now at a discounted price.
Hertz Global Holdings (HTZ)
from Ian Wyatt’s Million Dollar Portfolio
Hertz Global Holdings (HTZ) is one of the largest rental car companies in the U.S. The company rents cars under the Hertz, Dollar and Thrifty brand names. With 11,500 locations in 145 countries, the company is a big player.
The car rental industry has been undergoing consolidation for the last decade. There are really just three major players: Hertz, Avis Budget Group (CAR) and privately held Enterprise Holdings. Enterprise owns the Alamo, Enterprise, and National brands.
But Hertz offers investors the best opportunity of the bunch.
The stock is down 20% YTD, considerably underperforming the stock market and Avis Budget.
Hertz has told investors that they can’t really trust financial results from the last three years. That is a little scary, and makes it challenging to value the company.
Current analyst estimates call for Hertz to report EPS of $1.46 in 2014 and $1.84 in 2015. Meanwhile, sales estimates call for $11.2 billion in 2014 and $12 billion in 2015.
Based on these numbers, Hertz shares trade at 12.5x next year’s EPS estimates. That’s a 22% discount to the forward P/E of the S&P 500. More important, the valuation is a discount to Avis Budget. Avis shares currently trade at $60.50. The company is expected to report EPS of $3.68 next year. That means that Avis trades at a P/E multiple of 16.5.
With a new CEO in place, Hertz should begin executing on its turnaround. That means cleaning up its financial reports and gaining the trust of investors.
Our price target of $30 is based upon a multiple of 16.5x next year’s EPS. That would value Hertz in line with its smaller competitor.
Having activist investors involved in Hertz will help the company become more shareholder-friendly. It was reported last week that Carl Icahn owns 8.5% and Jana Partners owns 7% of Hertz.
Like many turnarounds, there are several unknown risks with Hertz. However, with shares trading near the 52-week low it seems that the negative news is priced into the stock. As this turnaround unfolds, Hertz should deliver solid gains to investors.
Over the next 12 months, I expect that Hertz shares will rise 32%. The stock could double in the next two or three years if the company succeeds at raising prices and improving its financial results.
Buy Hertz (NYSE: HTZ) below $24 per share.
Ian Wyatt, Ian Wyatt’s Million Dollar Portfolio, www.100kportfolio.com, 802-434-6900, November 19, 2014