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Is Hertz's Profit Warning That Much Of A Surprise?

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Is Hertz's Profit Warning That Much Of A Surprise?
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Hertz Global Holdings Inc (NYSE: HTZ) shares are trading lower by $1 (10.5 percent) at $8.70 in Monday's session. The catalyst for the sharp decline was the company announcing Q1 rental revenue and Q1 adjusted EPS will be lower than expected due to excess industry capacity. It affirmed FY 2016 adjusted EPS at $0.95-$1.10 vs. $1.05 estimates.

In sympathy, Avis Budget Group Inc. (NYSE: CAR) shares were trading lower by $1.70 at $23 in Monday's session.

Competition

To followers of the recent trend in short-term transportation alternatives, this comes as no surprise. Simply stated, Hertz represents the past when it comes to shorter-term modes of transportation. The company is riddled with debt and has fallen victim to the newer, cheaper and more efficient modes of transportation.

Over the last few years, companies such as Uber, Lyft, Zipcar and Car2go have provided consumers with lower-cost and more efficient modes of transportation. The competition doesn't end there.

Related Link: Investors Sell Hertz Shares Following Q1 Warning

On April 14, Chariots for Women will be launched by a former Boston Uber driver and his wife. In order to combat the potential danger for women presented by unscrupulous Uber drivers, the service is operated by women drivers and will not allow men as riders or drivers. The company's main concern is safety and provides several safeguards in order to protect its customers.

Simply stated, when traveling to a new city, it can be more cost and time efficient to make use of these services than to rent a car. Along these lines, there is no worry over navigating in an unfamiliar area or factoring in additional time upon departure in order to allow for a rental car to be returned.

How many times have you waited for a long time at a rental car only to find out the car you had pre-ordered is not available? Worse yet, how about a car provided for by the company wreaks of smoke or was not properly cleaned after the last time it has used? And there's nothing more aggravating than to have a rental car malfunction and as a result have to return the car or wait for new one to be delivered.

Icahn's Pain

If you are caught on the wrong-side of today's movement in Hertz, you are not alone. No one is feeling the pain more than Carl Icahn, who as of mid-December had amassed a 14.3 percent stake in the company. This was a significant increase to the 8 percent stake he possessed as of late-August.

Over this course of time, the issue has swooned from the $20 area into single digits. One has to contemplate how much further the issue could tumble, if Icahn switches from aggressive buyer to aggressive seller in the issue.

Based on the today's revelation from the company, coupled with emerging trends in short-term transportation services, the issue may not have found a bottom.

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