Why Hertz Stock Plummeted and Rebounded Today

Hertz Global Holdings (NASDAQ: HTZ) Shares initially fell as much as 11.9% on Tuesday 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, rising 9.2% as of 3:20 PM ET.

This is why.

Image source: Getty Images.

Hertz is missing the point

Investors were clearly not happy with Hertz’s report at first glance, and it’s clear why.

Revenue fell 5% to $2.58 billion, missing estimates of $2.7 billion. The company also recorded a $1 billion impairment charge in the quarter due to a decline in the residual value of its fleet. That was the result of an exaggerated push into electric vehicles, whose resale values ​​have plummeted, and the purchase of gas-powered vehicles a few years ago, when prices soared due to supply chain shortages. Electric cars have been a thorn in Hertz’s side for several quarters, because repair costs are higher than expected and demand for them from tenants is lower than expected.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell from a profit of $359 million in last year’s quarter to a loss of $157 million this time around due to increased vehicle depreciation.

Ultimately, the company reported an adjusted loss of $0.68 per share, compared to a profit of $0.70 per share in the third quarter of 2023, and below the consensus estimate of a loss of $0.50 per share.

CEO Gil West said the company is implementing its “back-to-basics strategy,” although he added that “there is still work to be done.”

Why Hertz bounced back

It wasn’t entirely clear why Hertz’s shares rallied 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 has settled into the stock, which is at a historic record lows and be valued at a cheap price-to-sales ratio of around 0.1. If the company can become solidly profitable, the stock should rise significantly.

Hertz said it would sell 30,000 electric vehicles by the end of the year to grow its fleet, and said it expects to complete the renewal of its broader fleet by the end of 2025.

The car rental industry is also cyclical and dependent on business activity and travel, and investors appear to be anticipating a period of economic growth that could hit Hertz in the back.

While the company isn’t out of the woods yet, it’s easy to see the stock’s upside potential, especially if corporate and consumer spending increases.

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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 one disclosure policy.