20% Hertz Selloff Not Redeeming For Morgan Stanley; Downgrades

Hertz Global Holdings, Inc HTZ cut its fiscal-year guidance by 30 percent, and investor confidence in management declined further.

Morgan Stanley’s Adam Jonas downgraded the rating on the company to Equal Weight while lowering the price target from $57 to $30.

Guidance Cut, Stock Volatile

“A decline in earnings visibility and guidance from management comes as financial leverage increases to sensitive levels of near 5x,” Jonas mentioned.

The analyst noted that the equity scenarios are very volatile at present, from a bear case of $5 to a bull case of $60.

Management has taken personal responsibility for the guidance cut, which the analyst believes is important, although there still remain questions regarding the team’s ability to deal with internal cost drivers.

Shares Slide

Hertz Global had also reported disappointing Q3 results, with the profits well below expectations.

The stock declined 23 percent following this, with the company losing almost a fourth of its market value.

Carl Icahn And Hertz

The only one to not sell off their stake in the company was Carl Icahn. In fact, Hertz Global’s largest shareholder has now doubled his stake in the company as a show of support. “Time will tell if what happened in 3Q was merely a one-time blip on the road to a successful operational and strategic turnaround. However, we believe the volatility of potential equity outcomes that investors must contend with is also very high,” Jonas stated.

Of particular note, Morgan Stanley did not directly address Icahn in the note. While considering operational and other metrics, Morgan Stanley goes so far as to derive a leveraged buyout price target. The absence of any mention of Icahn and his increased stake from 15 percent in July to 33.77 percent as of November 8 to the 35.27 percent as of November 10 could be telling. Given the drastic increase in stake, Icahn's plan for Hertz could be out in the open.