Shares of Hertz Global (HTZ -5.56%) climbed as much as 10.9% early Thursday, then settled to close up 7.5% after the car rental company received a notable analyst upgrade.
In a note to clients this morning, Morgan Stanley's Adam Jonas raised his rating on Hertz stock to overweight from equal weight and increased his per-share price target by $1 to $16 per share. Even after today's pop, Hertz closed Thursday at just under $9 per share.
Why Morgan Stanley thinks Hertz will outperform
To justify his relative bullishness, Jonas praised Hertz's decision last week to sell around 20,000 electric vehicles from its fleet, representing around a third of its electric fleet. Jonas called Hertz's move at the time "another sign that EV expectations need to be reset downward across the market."
To be fair, Hertz's move shouldn't be entirely surprising. Though Hertz had previously targeted converting around 25% of its total fleet to electric by the end of 2024, at an investor conference last year CEO Stephen Scherr highlighted headwinds from higher repair and insurance costs related to its EV fleet.
What's next for Hertz investors?
This doesn't mean that Hertz won't eventually continue converting more of its fleet to electric. But it does indicate the transition is likely to take longer than previously expected -- particularly as long as gas vehicles boast more predictable costs of ownership for vehicle-centric businesses like Hertz at scale.
I suspect investors will receive more details on Hertz's EV plans when the company releases fourth-quarter 2023 results on Feb. 6, 2024. But given this analyst's vote of confidence in the meantime, it's no surprise to see shares rallying in response.
