Billionaire Bill Ackman is known for making big contrarian bets on Wall Street, including piling into Chipotle Mexican Grill when it was still reeling from the E. coli crisis, and shorting Herbalife on concerns about its business.
Now, Ackman is shaking up Wall Street again, taking a 19.8% stake in Hertz Global Holdings (HTZ 4.19%). Shares of the struggling car rental company soared on the news, jumping 126% over a two-day span on April 16-17 after Ackman revealed the news.
For Ackman, it was a classic contrarian purchase. Hertz had fallen 90% from when it reemerged from bankruptcy in 2021 before he bought it, and the stock is not getting much love on Wall Street either.
Of the 10 analysts covering it, not a single one rates it a buy. Six of them call the stock a hold, which is often seen as a euphemism for sell, and four called Hertz an outright sell, which is relatively uncommon on Wall Street.
So who's right about Hertz -- Ackman or the analysts? Let's take a look at Ackman's thesis for the stock, which he laid out on X.
Image source: Getty Images.
The bull case for Hertz, according to Bill Ackman
Ackman outlined several reasons why he believes Hertz can deliver an attractive return. First, he sees Hertz as an operating company with a highly leveraged portfolio of automobiles, and he believes its fleet of used cars is likely to gain value from tariffs that are expected to push up prices for both new and used cars.
Second, he sees the company's mistake with Tesla vehicles, which it overbought and found to be too expensive to maintain and repair, as mostly in the past.
Third, he believes that improving industry dynamics will lead to more rational competitive behavior, meaning that rental car companies will raise their prices or pull back incentives, much like what happened in the ride-sharing and food delivery industry with Uber, Lyft, and DoorDash.
Finally, he's confident in the new management team, led by CEO Gil West, and its turnaround plan, and sees the company's leveraged capital structure as boosting the potential for returns.
Ackman also called out privately held Enterprise, the industry leader that he believes has a profit margin above 20%, and said that Hertz has the potential to do the same.
What the numbers show
Hertz is clearly working on a turnaround, but its 2024 results were ugly. It reported a net loss of $2.9 billion on $9 billion in revenue, down 3.4% from the year before. In the fourth quarter, it lost $479 million on $2.04 billion in revenue.
Management did tout progress in its turnaround efforts, noting that it reduced its EV fleet by 30,000, as intended. It has narrowed revenue per unit from 7% in the first quarter to 1% in the fourth quarter as it aims to maximize revenue per unit. Vehicle depreciation improved by 19% in the fourth quarter, showing it's better managing its fleet.
Management expects the operational transformation to be substantially completed by the end of 2025.
NASDAQ: HTZ
Key Data Points
Is Hertz a buy?
Hertz's 2024 results show the company still has a long way to go to succeed in its turnaround, and the macro environment is likely to only make things harder. Airlines and travel companies like Airbnb are already reporting a weakening travel market, and rental car companies tend to be highly sensitive to travel demand and the business cycle.
Additionally, Hertz has $16.3 billion in debt, meaning its recovery is on the clock, and a recession could scotch any hope for a turnaround. Based on the 2024 results, Hertz's revenue is declining. It's still reporting wide losses, and its debt burden is costing it roughly $1 billion in annual interest expense. Add in the headwinds from a slowing economy, and a recovery seems unlikely.
