Shares of Hertz Global Holdings (OTC:HTZG.Q), a vehicle rental company that recently filed for bankruptcy protection, are soaring more than 130% Friday after a positive May jobs report and optimistic news from the airline industry that suggests the worst is over. However, investors must read and understand Hertz's current situation.
Yes, there's reason for the broader transportation sector to be optimistic, as the May jobs report noted a 2.5 million-entry increase in nonfarm payrolls compared to the expected 7.5 million loss. Further, American Airlines Group said Thursday that it plans to boost flights by 74% next month, giving many investors a signal that it could be time to scoop up shares of beaten-down transportation stocks if the worst of the COVID-19 impact is behind us.
Sure, in normal circumstances, the anticipated surge in flights would be good news for Hertz, a company that generates a vast majority of its revenue from consumers traveling to and from airports -- but these are not normal circumstances. Hertz has already filed for bankruptcy protection and is currently in the process of settling with its major secured and unsecured debt holders. Roughly $15 billion of Hertz's total $19 billion debt pile is linked to the financing of its vehicle fleet, and that's what got the company into trouble in the first place. Simply because the company has so much debt to negotiate and satisfy with major lenders, the likely outcome is that regardless of what happens, current shareholders will likely be wiped out and left with nothing of value.
Traders and investors hoping to speculate on Hertz stock volatility right now are playing a dangerous game with shares that will likely go to zero. The company has time to negotiate and could potentially satisfy remaining debt holders with shares of a new and restructured Hertz company to give them something of value for their debt. Hertz stock has quadrupled since its opening price Wednesday, but long-term investors should watch this from the sidelines; even one of the world's best investors has thrown in the towel.