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Hertz Touches 52-Week Low: What Weighed Upon the Stock?

Zacks Equity Research

Shares of Hertz Global Holdings, Inc. HTZ touched a 52-week low of $16.87 on Mar 24, though it recovered to close the day at $17.45. In fact, shares of this operator of car rental business have underperformed both the Zacks categorized Transportation – Services industry and the broader sector in the past six months.

While this Zacks Rank #5 (Strong Sell) stock plunged over 56%, the industry fell 27.7%. On the contrary, the Zacks categorized Transportation sector returned 7.8% over the same time frame.

Let’s Delve Deep

Hertz had recorded negative earnings surprises of 43.8% and 31.5% in the third and fourth quarters of 2016, respectively. In the fourth quarter, the company suffered a loss and also recorded soft revenues. Fleet and service issues had an adverse impact on the results.

The company posted a quarterly adjusted loss of 71 cents per share, which was wider than the Zacks Consensus Estimate of a loss of 54 cents and also the year-ago loss of 29 cents. Also, results were hurt by weak sales and increased expenses.

Total revenue fell year over year mainly due to soft revenues at the International rental car segments, which was largely hurt by unfavorable currency movements. Additionally, the company’s top line lagged the Zacks Consensus Estimate for the second consecutive quarter.

Moving ahead, Hertz remains focused on solving issues related to fleet and services, which were the main deterrents in 2016. In this regard, management plans to upgrade its fleet quality and mix in the U.S. as well as provide employees with the required tools and training, to offer improved services to customers. That said, the company remains keen on making investments in fleet, services, marketing and technology in 2017, which in turn should drive top-line growth.

However, estimates have witnessed a downtrend over the last 30 days. The Zacks Consensus Estimate for the first quarter and 2017 are currently pegged at a loss of 69 cents and $1.20, down from a loss of 46 cents and $1.52, respectively.

Considering price-to-earnings (P/E) ratio, Hertz looks pretty overvalued when compared with the industry as well as the S&P 500. The stock has a trailing 12-month P/E ratio of 35.61, which is above its median level of 21.88 but still below the high level of 48.22 scaled in the past one year. In contrast, the trailing 12-month P/E ratio for the industry and the S&P 500 is 20.04 and 20.18, respectively. This shows that the stock has little upside left.

Key Picks

Better-ranked stocks in the same industry include Hub Group, Inc. HUBG, DSV A/S DSDVY and Grupo Aeroportuario del Sureste, S. A. B. de C. V. ASR.

Hub Group, with a long-term earnings growth rate of 13% has increased 18.2% in the past year. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

DSV A/S, which carries a Zacks Rank #2 (Buy) has jumped roughly 19% in the past three months.

Grupo Aeroportuario, a Zacks Rank #2 stock, grew 25.8% in the past six months. Further, the company’s earnings had outpaced the Zacks Consensus Estimate in the trailing four quarters, with an average of 3.6%.

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