Tuesday, BofA Securities initiated coverage on Hertz Global (NASDAQ:HTZ), the world's third-largest rental car company, with a Neutral rating and a price target of $9.00. The firm highlighted that while the current year's challenges are reflected in the stock price, they expect only moderate improvements in EBITDA for 2025. They noted that Hertz's earnings growth is likely to be limited due to a significant increase in vehicle interest expense, estimated at about 40% in 2024 and approximately 15% in 2025.
The company's leverage ratio, currently at 4.5 times, is the highest it has been since Hertz emerged from bankruptcy in 2021. Despite these financial pressures, BofA Securities set their price objective at a roughly 25% potential upside, based on an enterprise value to EBITDA (EV/EBITDA) multiple of 8 times on the company's estimated earnings for 2025.
BofA Securities' valuation of rental car companies takes into account the trading multiples before the pandemic, ranging from 6 to 8 times. However, they have placed Hertz at the higher end of this spectrum, indicating that the industry's fundamentals are currently stronger than they were pre-pandemic.
Hertz's stock price reflects an anticipation of the headwinds the company is facing in 2024, as per BofA Securities' analysis.
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