Credit Suisse Downgrades Hertz Amid 'Lower Confidence In Outlook'

Hertz Global Holdings Inc HTZ preannounced its 1Q results on April 11, while reducing its top line guidance for 2016.

Credit Suisse’s Anjaneya Singh downgraded the rating on the company from Outperform to Neutral, while lowering the price target from $15 to $12.

1Q Preannouncement & Guidance

Singh mentioned that Hertz Global preannounced its 1Q results, “indicating that weaker pricing would cause revenue per available car day (RACD) to decline 2.5-3.5 percent.”

The company also revised its top line guidance for 2016, with the US RAC revenue growth being decreased from 1.5-2.5 percent to (1.5)-0 percent and EPS being reduced from $1.09-$1023 to $0.95-$1.10.

The adjusted EBITDA guidance was left unchanged, with Hertz Global citing adequate cushion via cost cuts.

Given that this was the second time that the company reduced its FY16 guidance, Singh expressed increasing apprehension regarding visibility into the rental car industry.

Key Concerns

“The most concerning aspects of the update are that 1) shocks stemming from the HTZ operating challenges are still affecting the industry, and 2) HTZ had not anticipated this better when it provided an updated outlook on March 1,” Singh pointed out.

The analyst also expressed concern regarding the availability of cash for share buybacks following the sale of the Car Inc. stake, decreased HERC targets and a highly levered balance sheet.

“We also are wary of the higher execution risk in the HTZ story during the early days of its turnaround,” Singh added.