Jefferies downgraded Hertz (HTZ) to a Hold rating (From Buy) and cut their 12-month price target to $8.00 (From $12.00) as they believe EV repair issues, higher opex and DPU may limit the rental car company’s near-term profitability.
Jefferies recognizes that the stock is currently 10% lower than its 52-week low, and though it seems undervalued, analysts lack confidence in the 2024/2025 estimates due to two consecutive quarters of missing guidance.
The company faces challenges like elevated expenses related to electric vehicles, operating costs, and depreciation. Despite Hertz cutting numbers, the stock has risen 5% from its November average.
2024 is expected to be a transition period with EBITDA margins well below the double-digit percentage range. Hertz faces challenges such as higher repair and maintenance costs for EVs, even after reducing its EV fleet by one-third, increased depreciation expenses due to the moderation of used vehicle values (especially EVs), and higher interest rates.
As a result, Jefferies has reduced the 2023 EBITDA estimates by 20% and the 2024 EBITDA by approximately 40% to around $500 million.
Jefferies anticipates that short-term profitability challenges will be the main factor influencing stock performance. They suggest that share repurchases might take a back seat in 2024, limiting potential gains. While 2025 EBITDA could experience significant year-over-year growth, Jefferies believes it may not surpass the levels seen in 2023.
Shares of HTZ are down 3% in pre-market trading Friday morning.