Why Shares of Hertz Crashed Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of car renter Hertz (NYSE: HTZ  ) dropped 10% today after the company reported earnings.

So what: Third-quarter results were actually better than estimated. Revenue was up 22% to $3.07 billion, meeting expectations, and adjusted earnings per share of $0.73 were $0.02 ahead of estimates. The problem is that Simply Wheelz didn't make proper payments after acquiring Hertz's Advantage brand and is filing for bankruptcy. Hertz had to put $4 million away to cover amounts due but not made.  

Now what: Management is exploring its options for recouping losses on the Advantage sale but doesn't seem optimistic. It took a $40 million charge related to the sale and the company probably isn't first in line in a bankruptcy court. I don't think this is a reason to panic today and actually view this as a buying opportunity for long-term investors. Shares trade at just nine times forward estimates and demand for rental cars is high right now.

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  • Report this Comment On November 05, 2013, at 5:21 PM, dbtuner wrote:

    you totally missed the point. Simply Wheelz declared Ch11 because the cars sold to them by Hertz are valued much less than Hertz was valuing them at. That brings into question the value of Hertz' entire fleet. Wheelz said the selling prices they were getting were $1600 less than Hertz said they would. Take that number and multiply it by the number of cars Hertz has and you get an $800M issue. This would put their credit on watch for a downgrade and possibly violate their loan agreements.

    Hertz would not answer any of these questions on the CC today. Very opaque CC. Seems like they are hiding something

  • Report this Comment On November 05, 2013, at 6:00 PM, dbtuner wrote:

    you missed the point. Hertz put those cars to Simply Wheelz at a stated residual value which is much too high. Brings to question the stated value of Hertz' entire fleet on their books. Could have credit downgrade implications and covenant violations.

    Company refused to talk about it on the CC which is very strange

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