What happened
Shares of Hertz Global Holdings (HTZ +0.00%), operator of the Hertz, Dollar, and Thrifty vehicle rental brands, are up more than 13% Monday morning after the broader markets absorbed a number of early state plans to gradually loosen social distancing restrictions.
So what
Any news that the COVID-19 coronavirus speed bump to our economy is shrinking and any plans to reopen the economy will be a huge boost to Hertz stock. Hertz was already struggling to adapt to a new world featuring ride-hailing apps, such as Uber and Lyft. Then COVID-19 all but halted travel and the need for vehicle rentals, compounding the financial pain facing the company in the near term.
Image source: Getty Images.
Further, plunging used-car residual values could force Hertz into a severe cash crunch during 2020. That's because Hertz used $10 billion in financing to buy its fleet of vehicles, and when the prices of those assets drop, Hertz is forced to make up the difference in cash within roughly three months. So Hertz investors are obviously rooting for the economy to open up and for travel to resume as quickly -- yet safely -- as possible.
Now what
Today's pop in Hertz's stock price indicates some optimism that states will begin to ease restrictions. Recent data from New York governor Andrew Cuomo pointed out Sunday that the death toll in the state dropped to its lowest in nearly a month and noted the worst could be over if we "act prudently" going forward. A number of mostly Southern states, including Georgia, plan to open the doors of gyms, barber shops, and theaters, among other businesses, acknowledging that the risk of COVID-19 cases could increase.
Ultimately, we'll need to strike a delicate balance in reopening the economy, and investors in Hertz and other hard-hit businesses, while hoping the worst is over, should expect more stock price volatility.
