Stock of the Day
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Hertz (HTZ)
Hertz Forecasts a Surprise Profit
One of the most volatile industries right now, one that has been impacted severely by the financial crisis, is the automobile industry. Major automobile manufacturers including General Motors (GM: Charts, News, Offers) and Chrysler have filed for Chapter 11 bankruptcy protection. Auto dealerships have had to slash prices in attempts to draw in customers, who are hesitant to make big purchases. And in an industry that blends the auto industry with the travel industry - another area where consumers are cutting back their spending - car rental companies such as Hertz have been struggling too. So how is it that today's announcements by Hertz's CEO show that the company is revving their engine to get back on track?
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Up until today, Hertz had recently been playing it pretty cautiously. The company has refused to issue an earnings forecast since late 2008, due to the uncertainty of the economic situation. Hertz had held back on purchasing new vehicles for its fleet, which has resulted in the size of its U.S. fleet dropping 15% from last year. Not only was Hertz concerned about the price of automobiles, but the company was also hindered by the realization that many people were holding back on traveling, because they simply didn't have the discretionary income to take a vacation right now.
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However, when CEO Mark Frissora spoke this morning, his comments indicated that the company has done a U-turn and is heading back in the opposite direction, sharing two major announcements. First, the company has finally issued an earnings forecast both for the second quarter and for the fiscal year. Hertz is expecting quarterly earnings between 9 and 10 cents, and yearly earnings between 12 and 15 cents. This is a vast improvement from analysts' estimates, which had projected quarterly earnings of 1 cent, and a yearly loss of 21 to 23 cents. The only potential stumbling block for the company is that their projected revenue is still lower than analysts' estimates, with Hertz projecting a yearly revenue of $6.7 to $7 billion, while analysts expected approximately $7.45 billion.
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The other good news was that CEO Frissora said that the reason the company could issue an earnings statement was due to the fact that the demand for rental cars is stabilizing, and the outlook for summer traveling is looking better than expected. Hertz backed this up from experience, sharing that reservations have been up over the last nine weeks. Due to this positive outlook, Hertz has decided to once again increase the size of their fleet; the company announced that they have already purchased 16,000 new vehicles in the last two months in the U.S. alone.
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Hertz is also expecting an improvement in other important data points, such as the number of car transaction days, as well as the percentage fleet utilization. Shares of Hertz have unsurprisingly jumped since these announcements, and the hopeful forecast for the rental car industry has helped propel shares of Avis Budget Group (CAR: Charts, News, Offers) and other rental car companies as well. Although Hertz seems confident in their decisions, the summer is just beginning, and investors will have to wait and see if summer travel really revs up as much as Hertz is hoping.
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