The car rental company’s stock made a surprising recovery after a disappointing earnings report.
Hertz Global Holdings (HTZ 8.61%) stock initially tumbled Tuesday by as much as 11.9% after the car rental giant posted a disappointing third-quarter earnings report before the opening bell. However, the stock then made a surprising recovery over the course of the session, and was up by 9.2% as of 3:20 p.m. ET.
Here’s why.
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Hertz misses the mark
Investors clearly didn’t like Hertz’s report at first glance, and it’s clear why.
Revenue fell by 5% to $2.58 billion, missing estimates for $2.7 billion. The company also recorded a $1 billion impairment charge in the quarter due to a decline in its fleet residual values. That was the result of an overdone push into electric vehicles, whose resale values have plummeted, as well as its purchases of gas-powered vehicles a few years ago when their prices were soaring due to supply-chain-related shortages. EVs have been a thorn in Hertz’s side for several quarters now as their repair costs have been higher than expected and demand for them from renters has been lower than expected.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell from a profit of $359 million in the prior-year quarter to a loss of $157 million this time due to increased vehicle depreciation.
On the bottom line, the company reported an adjusted loss of $0.68 per share, down from a profit of $0.70 per share in Q3 2023, and below the consensus estimate for a $0.50 per share loss.
CEO Gil West said the company is implementing its “back-to-basics strategy,” though he added that “there is still work to be done.”
Why Hertz bounced back
It wasn’t fully clear why Hertz shares recovered and jumped into positive territory, but some investors seemed to be betting that the worst pain of Hertz’s transformation is now behind it and piled into the stock, which is trading near historic lows and is valued at a cheap price-to-sales ratio of just around 0.1. If the business can turn solidly profitable, the stock should jump notably.
Hertz said it would sell 30,000 EVs by the end of the year to rightsize its fleet, and said it expects to finish its broader fleet refresh by the end of 2025.
The car rental industry is also cyclical, dependent on business activity and travel, and investors seem to be anticipating a period of economic growth that would be a tailwind for Hertz.
While the company isn’t out of the woods yet, it’s easy to see the upside potential in the stock, especially if business and consumer spending increase.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
