Hertz, a major player in the rental-car industry, has faced setbacks with its foray into electric vehicles (EVs). Despite this, the stock presents an enticing opportunity in 2024.
The stock had received a favorable rating from ‘ when it was trading near $18 earlier this year. However, its value has since plummeted by almost 50% to around $10. Hertz’s substantial investment in EVs, accounting for approximately 11% of its fleet compared to a mere 2% for rival Avis Budget Group, has proven to be a costly misstep. Repair costs for its predominantly Tesla-based fleet have been exorbitant, and Hertz has been forced to sell the vehicles at significantly reduced prices, resulting in lower-than-projected returns. Moreover, customers have expressed dissatisfaction with the EVs due to charging and limited range issues.
Nevertheless, the rental-car industry operates as an oligopoly, with Enterprise, Avis, and Hertz controlling over 90% of the U.S. market. This dominance suggests that pricing should remain stable. Despite profit estimates being revised downward, Hertz’s projected 2024 earnings multiple of 8.6 indicates an attractively low valuation. Additionally, Hertz’s market value sits at a modest $3.1 billion, which is less than half of Avis’ market value despite Hertz’s slightly larger size. Another potential factor is the investor group holding nearly 60% ownership in Hertz, which might consider purchasing the remaining shares if they continue to trade at a discounted price.
According to Deutsche Bank analyst Chris Woronka, the current stock price is “overwhelmingly attractive for patient investors.”