With a history of delivering positive earnings surprises and with a stock price soaring 55% since October 2011, Hertz Global Holdings Inc. (HTZ) has all the ingredients that a growth stock should have. Furthermore, the probable acquisition of Dollar Thrifty Automotive Group Inc. (:DTG) may prove to be a synergy for this car rental company.
This Zacks #1 Rank (Strong Buy) is benefiting from a modest economic recovery, new market opportunities, cost containment efforts and improving trends in the equipment rental business.
What Makes Hertz a Growth Pick?
Out of the past 12 quarters, the company has outperformed the Zacks Consensus Estimate ten times and matched twice. It has also posted positive surprises for the last 8 quarters in a row.
Looking at the last four quarters, Hertz topped the Zacks Consensus Estimate by an average of 112%, including an earnings surprise of 400% in the first quarter of 2012.
Hertz, which competes with Avis Budget Group Inc. (CAR), posted first-quarter 2012 earnings of 5 cents per share on May 2, beating the Zacks Consensus Estimate by 4 cents and marking a substantial improvement from a loss of 3 cents in the prior-year quarter. A double-digit growth in the top line coupled with effective cost management acted as catalysts.
Total revenue came in at $1,960.9 million, jumping 10.2% year over year and reflecting sales increases of 9.8% and 12.6% across the car rental and equipment rental segments, respectively. Adjusted operating income grew 38.2% to $164.9 million, whereas operating margin expanded 170 basis points to 8.4%.
Buoyed by these better-than-expected results, management now expects revenue between $8.9 billion and $9.0 billion for 2012, up from a range of $8.85 billion to $8.95 billion forecasted earlier. Earnings are now projected between $1.28 and $1.38 per share, versus the previous expectation of $1.16 to $1.26.
Decent Earnings Estimate Revisions
The Zacks Consensus Estimates for 2012 and 2013 increased 8.1% and 7.5% to $1.33 and $1.57, respectively, in the last 60 days. The 2012 estimate lies at the mid-point of the company's guidance range, and implies a year-over-year growth of 37.1%, whereas the 2013 estimate reflects an increase of 18%.
With respect to its valuation metrics, shares of Hertz Global Holdings look attractive. The company currently trades at a forward P/E of 9.3x, reflecting a 21.9% discount to the peer group average of 11.9x. Also, on a price-to-book basis, shares trade at 2.3x, a 16.1% discount to the peer group average of 2.8x.
A Look at the Chart
The year-to-date return for the stock is 7.3% compared with the S&P 500's return of 5.4%. A quick look at the price and consensus chart reveals that the stock price line remains below the 2012 and 2013 earnings estimate lines, suggesting that the stock is undervalued.
Founded in 1918 and headquartered in Park Ridge, New Jersey, Hertz Global Holdings operates car and equipment rental businesses globally. The company reports through two segments - Car Rental and Equipment Rental. One of the premium airport general use car rental brands, Hertz operates from approximately 8,650 locations in about 150 countries. The company runs its equipment rental business from roughly 325 branches in the United States, Canada, China, France, Spain, Saudi Arabia, and international licensees.
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