Hertz Global Holdings (NASDAQ:HTZ) shares plunged more than 8% intra-day today after JPMorgan downgraded the company to Underweight from Neutral, citing softer travel trends and challenges in managing its vehicle fleet as key risks for the company’s future financial performance.

JPMorgan highlighted concerns over potential fleet churn, which could drive up depreciation costs and reduce EBITDA. The bank revised its 2025 EBITDA forecast to $325 million, down from a previous estimate of $425 million, and projected $400 million for 2026. This downward adjustment points to a longer recovery period before Hertz returns to normalized earnings, likely extending beyond 2026.

JPMorgan also flagged Hertz’s significant financial leverage and potential litigation costs linked to its past bankruptcy, factors that had not been fully incorporated into earlier valuations. Given these risks, the bank expressed a preference for rival Avis Budget, which it characterized as a stronger operator with less leverage, offering better value in the current market.

Softening travel metrics since Hertz’s last earnings report have raised concerns about a potential decline in transaction volume and revenue per day. Although the recent rise in the Manheim Index—an indicator of used vehicle prices—could temporarily boost Hertz’s earnings through higher residual values, JPMorgan cautioned that this could also lead to quicker fleet turnover, negatively impacting long-term profitability.

Hertz Global Holdings (HTZ:NASDAQ) faced a challenging period as its stock value took a significant hit, dropping 19% in the wake of its first-quarter financial results. The downturn was primarily due to an unexpected $195 million cost, a consequence of the company's ambitious but ultimately unsuccessful shift towards electric vehicles (EVs). This move, particularly the company's strategy involving Tesla EVs, did not pan out as planned, leading to a substantial financial setback. The situation was detailed in a report by Investopedia on April 25, 2024, shedding light on the difficulties Hertz encountered in navigating the EV market transition.

The financial repercussions of Hertz's foray into electric vehicles underscore the risks associated with transitioning from traditional combustion engine models to EVs. The additional $195 million cost that Hertz incurred highlights the potential financial pitfalls of such strategic shifts, especially when the adoption does not meet the company's expectations. This loss significantly impacted Hertz's bottom line, contributing to a notable first-quarter loss that alarmed investors and led to a sharp decline in the company's stock value.

The decision to integrate Tesla EVs into Hertz's fleet was a bold move aimed at positioning the company as a leader in the sustainable transportation sector. However, the challenges in implementing this strategy effectively demonstrate the complexities involved in adopting new technologies within established business models. The financial strain from this unsuccessful transition to EVs not only affected Hertz's immediate financial health but also raised concerns about the company's strategic direction and its ability to adapt to the rapidly evolving automotive market.

Investopedia's report on April 25, 2024, serves as a cautionary tale for other companies in the rental car industry and beyond, emphasizing the importance of careful planning and risk assessment when venturing into new technological territories. Hertz's experience with Tesla EVs illustrates the potential for significant financial losses when ambitious plans do not materialize as expected, highlighting the need for companies to balance innovation with financial prudence.

Morgan Stanley analysts upgraded Hertz Global (NASDAQ:HTZ) from Equalweight to Overweight, albeit with a reduced price target of $15.00, down from the previous $16.00.

The analysts discussed Hertz's current challenges and future potential, noting that the company's ambitious electric vehicle (EV) strategy has intensified existing issues related to fleet costs and operational expenses per unit. This has led to a significant lowering of consensus expectations.

However, the analysts believe that recent actions taken by Hertz, despite causing a sharp downward revision for the fiscal year 2024 forecasts and a sell-off in the stock, are likely to reduce long-term risks for the company.

Despite the reduced price target, the analysts pointed out that there is approximately a 90% upside to the revised price target, which they believe offers an improved risk-reward balance.

Morgan Stanley analysts upgraded Hertz Global (NASDAQ:HTZ) from Equalweight to Overweight, albeit with a reduced price target of $15.00, down from the previous $16.00.

The analysts discussed Hertz's current challenges and future potential, noting that the company's ambitious electric vehicle (EV) strategy has intensified existing issues related to fleet costs and operational expenses per unit. This has led to a significant lowering of consensus expectations.

However, the analysts believe that recent actions taken by Hertz, despite causing a sharp downward revision for the fiscal year 2024 forecasts and a sell-off in the stock, are likely to reduce long-term risks for the company.

Despite the reduced price target, the analysts pointed out that there is approximately a 90% upside to the revised price target, which they believe offers an improved risk-reward balance.

Morgan Stanley analysts upgraded Hertz Global (NASDAQ:HTZ) from Equalweight to Overweight, albeit with a reduced price target of $15.00, down from the previous $16.00.

The analysts discussed Hertz's current challenges and future potential, noting that the company's ambitious electric vehicle (EV) strategy has intensified existing issues related to fleet costs and operational expenses per unit. This has led to a significant lowering of consensus expectations.

However, the analysts believe that recent actions taken by Hertz, despite causing a sharp downward revision for the fiscal year 2024 forecasts and a sell-off in the stock, are likely to reduce long-term risks for the company.

Despite the reduced price target, the analysts pointed out that there is approximately a 90% upside to the revised price target, which they believe offers an improved risk-reward balance.

Analysts at Oppenheimer provided their outlook on Hertz Global Holdings, Inc. (NASDAQ:HTZ) ahead of the upcoming Q3 earnings, scheduled to be released on October 27.

The analysts expect solid topline results and an optimistic outlook. Both the rate and demand environment have remained strong; and, airline bookings, which the analysts view as the best leading indicator for car rental demand, have remained strong. Offsetting this fundamental strength is the normalization of used car prices—e.g., down approximately 3%/2% month-over-month in Sept/Oct.

As a result, the analysts lowered their Q3/2022 EBITDA estimates to $581 Million/$2.25 Billion, from $605 Million/$2.3 Billion. For the same reason, the analysts harmonized 2023 EBITDA with management’s previously communicated “normalized EBITDA” of $1.5 billion, vs. Oppenheimer’s $1.76 billion. The analysts believe their estimates are conservative, as they ignore the benefits of Carvana, EVs, and Uber. The analysts reiterated their Outperform rating and $25 price target on the company’s shares.