$赫兹租车(HTZ)$ Hertz’s stock is having its worst day in seven years, and it’s not entirely the rent-a-car company’s fault By Claudia Assis Published: May 10, 2017 6:59 a.m. ET
Plummeting used-car prices a key reason rental companies are seeing red Bloomberg News Shares of Hertz Global Holdings Inc. on Tuesday traded at their lowest in seven years after worse-than-expected first-quarter results, but the car-rental company is not entirely to blame for the poor quarterly showing.
The industry has endured three lean years, with pricing down and fleet costs up, and Hertz HTZ, -7.29% has been taking the brunt of it.
Demand for rental cars, which, for many consumers are as appealing as a visit to the dentist’s chair, is only part of the story, amid the proliferation of car-hailing companies such as Uber and Lyft.
The real problem is plummeting used-car prices. A large part of the business for car-rental companies is offloading the thousands of cars that they retire from their fleets every year.
An uptick in leased new cars in recent years has left the used-car market oversupplied, said Karl Brauer, an analyst with Kelley Blue Book.
“With the record lease numbers we’ve seen in the past few years, we’re starting to see the impact of all those cars coming back, increasing the used car supply and inevitably reducing their values,” he said. “This is particularly true of sedans coming off lease because the market demand for sedans is substantially lower than it was three years ago.”
A 2010 Ford Focus SE sedan, for example, was worth around $10,200 in May of 2013. That same 3-year-old car, a 2013 Ford Focus this time, however, is worth just under $8,000 this May, according to Kelley Blue Book. Small and midsize sedans are the bread and butter of a car-rental fleet.
Shares of Hertz have lost nearly 39% in 2017, while shares of rival Avis Budget Group Inc. CAR, -5.30% have declined about 26% in the same period. That compares with gains of around 7% for the broad benchmark S&P 500 index SPX, -0.64% .
Hertz shares were down as much as 21% on Tuesday, their largest percentage decrease since Nov. 8, when the stock dropped nearly 23%. The stock closed at $12.80, its lowest close since March 2009, and a new 52-week low for the shares.
Analysts on average have a buy rating on Avis, according to FactSet. The same analysts on average rate Hertz’s stock hold. Avis, which reported quarterly results last week, “deserves a lot of credit for running a tight ship and managing the company well in a challenging environment,” analysts at Morgan Stanley said in a note.
The market looked less kindly on Hertz. The company reported an adjusted first-quarter net loss of $1.61 a share on sales of $1.92 billion, compared with an adjusted net loss of $67 million, or 79 cents a share, for the same period last year. FactSet expected the rental company to report a loss of 90 cents a share on sales of $1.95 billion.
Fleet depreciation “was the key driver” for the sharply below-consensus results, analysts at Deutsche Bank said in a note Tuesday. They expected depreciation to increase 9%, but it rose 15%.
Hertz “is attempting a complete overhaul under new management after struggling with myriad issues for the past three years. We continue to believe 2017 will be difficult for the company, particularly from a free cash flow perspective (net of capex),” they wrote. “We believe investors are likely to remain wary of the stock until some kind of inflection becomes apparent.”
The company’s metrics suggest investors haven’t seen the worst yet, analysts at Morgan Stanley said. Hertz’s U.S. fleet grew 4% on a year-on-year basis, while the Morgan Stanley analysts expected a contraction of 4%, and the company is holding on to “significant levels of inventory,” they said.