Tuesday, analysts at Jefferies revised their outlook for Hertz Global (NASDAQ:HTZ), reducing the price target on the car rental company's shares to $4.00 from the previous $5.00 while maintaining a Hold rating. The adjustment reflects a more cautious stance on the company's near-term earnings potential.
The firm's decision to lower the price target is based on revised EBITDA estimates for the second quarter, now aligned with management's expectations. The revision takes into account an increased depreciation of revenue-earning vehicles, a metric known as DPU. Despite these changes, Jefferies has left their top-line assumptions around revenue per day (RPD) and rental volumes largely unaltered.
In addition to the second quarter adjustments, Jefferies has also revised its EBITDA projections for the years ahead. For 2024, the firm now expects Hertz to report an EBITDA of negative $934 million, a significant decrease from the previously estimated negative $391 million. Looking further ahead to 2025, the EBITDA forecast has been lowered to $426 million from the earlier projection of $634 million.
The analyst from Jefferies commented on the revisions, stating, "We're lowering our Q2 EBITDA estimates to come in line with management's expectations given higher than originally expected depreciation of revenue earning vehicles/DPU.
Our top-line assumptions around RPD and volumes are relatively unchanged. We're lowering our 2024 and 2025 EBITDA estimates to -$934mm and $426mm, respectively (from -$391mm and $634mm). Maintain Hold."
In other recent news, Hertz Global has been the focus of various financial activities and evaluations. Morgan Stanley maintained an Overweight rating on Hertz, citing the company's ability to manage its fleet and revenue as key factors. In contrast, BofA Securities maintained its Underperform rating, anticipating a significant EBITDA loss of approximately $700 million in 2024.
Hertz is also grappling with increased depreciation expenses due to an aggressive fleet update, which involves selling 19,000 out of 30,000 electric vehicles by mid-2024. Despite these cost challenges, Hertz anticipates steady or up to 1% year-over-year growth in revenue per day for the third and fourth quarters of 2024.
To boost liquidity, Hertz has disclosed plans to issue $750 million in debt through its subsidiary, The Hertz Corporation. This includes $500 million of First Lien Senior Secured Notes and $250 million of Exchangeable Senior Second-Lien Secured PIK Notes, both due in 2029. The proceeds are intended for reducing Hertz Corp.'s $2.0 billion revolving credit facility.
As part of its financial shakeup, Hertz is also considering a sale of at least $700 million in secured debt. This strategy follows the recent appointment of Scott Haralson, the former CFO of Spirit Airlines (NYSE:SAVE), as Hertz's new finance chief.
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