Car rental company Hertz Global Holdings (NASDAQ:HTZ) is exploring various financing options to raise capital, Bloomberg reported. The move comes as the company focuses on boosting liquidity, improving its financial performance, and enhancing fleet management.
It’s not clear whether Hertz plans to raise new equity, debt, or a combination of both. However, it’s important to note that Hertz’s net corporate debt at the end of Q1 2024 was $3.25 billion, which was higher than the company’s long-term leverage target. Moreover, Moody’s Ratings cut its outlook to negative from stable, citing Hertz’s weak earnings.
Hertz Faces Challenges Due to Elevated Costs
Hertz has been struggling due to a strategic misstep involving its electric vehicle (EV) strategy. The company invested heavily in EVs, primarily buying a large number of vehicles from Tesla (NASDAQ:TSLA), which eventually proved to be expensive to operate and led to high depreciation expenses.
It’s worth highlighting that depreciation is the largest component of any vehicle’s total cost of ownership (TCO) and reflects the loss in resale value over time. Tesla significantly reduced the prices of its vehicles to push volumes amid lower demand. Given this move, Hertz lost significant value in depreciation per unit (DPU) due to declining forward residual estimates.
The company continues to grapple with elevated costs, driven by increased vehicle depreciation, which rose by $588 million year-over-year in Q1 of 2024. Hertz’s DPU was $592, with $119 attributed to the incremental vehicle depreciation expense for EVs held for sale. Additionally, Hertz recorded a $195 million charge to adjust the fair value of EVs in its inventory at quarter-end and to recognize losses on sold units.
Is Hertz a Good Stock to Buy Now?
Given the elevated costs and mounting losses, Hertz stock lost about 71% of its value in one year. Despite this notable drop, analysts don’t see Hertz as a compelling bet and maintain a bearish outlook.
With five Holds and two Sell recommendations, Hertz stock has a Moderate Sell consensus rating. The analysts’ average price target for HTZ stock is $5.30, implying a 14.97% upside potential from current levels.
