Hertz Global Holdings (HTZ +5.75%) has been on a roller-coaster ride over the past few years. After a brutal patch caused by the COVID-19 pandemic, the company was forced into bankruptcy, only to emerge with a turnaround plan -- which has failed to gain much traction.
It's fitting, then, that billionaire Bill Ackman, a closely followed investor who heads Pershing Square Capital Management, made a big bet on the rental company having a brighter future. Here's what he sees.
The market goes wild
Pershing Square recently disclosed a purchase of 12.7 million shares of Hertz. That sent investors scrambling to get their own shares, pushing Hertz stock up massively:
So what does Mr. Ackman see that nobody else does? Hertz made a substantial bet on purchasing electric vehicles (EVs) for its rental fleet. Unfortunately, the bet made on EVs made by Tesla was ill-timed, as the latter company would go on to dramatically cut prices afterwards. Hertz also bought too many Teslas, and consumer demand for its EVs proved to be weaker than expected. The rental company posted a staggering loss of nearly $2.9 billion in 2024 alone.
Since Hertz made its big bet on a fleet of Teslas, which proved to be expensive to maintain (among other things), Ackman sees potential in the rental-car business amid tariff uncertainty.
"Hertz is uniquely well-positioned in the current tariff environment," Ackman said in a post on the social media site X, according to Automotive News. "Hertz owns a fleet of over 500,000 vehicles valued at approximately $12 billion. A 10 percent increase in used car prices would equate to a $1.2 billion gain on its auto assets -- equivalent to approximately half of the company's current market capitalization."
That's right. The key to Ackman's bet is the treasure trove of assets found in Hertz's used-car fleet. He feels it's highly undervalued by the market (although perhaps that's a mistake corrected by the stock's rise in price). If a 10% gain in used-car prices would mean a $1.2 billion gain for its automotive assets, that would be a lot for a company with a market capitalization of just $2.7 billion.
The next step
But Ackman's gamble on the beleaguered rental company goes beyond its fleet of assets, and the belief that Hertz can get to $30 per share by 2029. Even after its recent run-up, the stock is trading below $9 per share, so the amount of upside is enticing.
But to reach its potential, Hertz has to make some serious operational improvements. For the stock to continue rising, the company needs to reach revenue per unit of $1,500, daily per-vehicle operating expenses below $45, and depreciation per unit of roughly $300. It also needs to push toward a fleet utilization target of 85%, whereas historically that's been closer to 80%.
It will also need to rotate its fleet from EVs, and trim operating costs. But all these factors should contribute to vastly improved unit revenue and margins over time.
NASDAQ: HTZ
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What it all means
There's definitely upside thanks to Hertz's core automotive assets, especially if new-car prices rise because of tariffs, causing used-car prices to follow. But it's important to note that the market has already reflected this upside, and that would-be investors have missed the boat on Ackman's clever insight.
Investing in Hertz Global now means you have full faith in the company's core turnaround, and there simply hasn't been much evidence of that lately. This might just be one interesting gamble to watch from the sidelines.
