Hertz's EBITDA May Bottom In Q2

While the rental car industry as a whole has struggled recently, the second quarter may be softer for Hertz Global Holdings Inc HRI. However, it could also mark a bottom for the company.

“We are lowering our 2Q adj. Corp. EBITDA to $30mn from $55mn," said MKM Partners analyst Christopher Agnew. "We believe pricing was softer in 2Q and de-fleeting headwinds (and therefore impact on fleet costs) lasted right through the end of the quarter.”

Fundamental Outlook Remains Unchanged

Despite these issues, MKM is not changing its fundamental outlook:

1. Incremental headwinds are the result of fleet right-sizing measures and are transitory.
2. Right sized fleets will help pricing and EBITDA improve in 3Q.
3. The second quarter could mark the bottom in TTM adjusted corp. EBITDA.

MKM Partners maintains a Buy rating on Hertz, with a $22 price target.

Justification To Stay At Buy

While summer demand is expected to be “robust,” Hertz intends to be realistic on demand in FY 2017 — a move that indicates a shift in management, as it has historically fleeted to an aspirational growth assumption that often leads to overfleeting, an issue the company is currently facing.

With privately held Enterprise experiencing year-over-year profit declines, a move to fleet tightening appears to be the move in the industry to increase profitability.

The major catalyst for Hertz remains pricing and fleet rightsizing.

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