Goldman Sachs Starts Hertz Global (HTZ) at 'Sell' and Avis Budget (CAR) at 'Neutral'
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(Updated - October 24, 2016 8:41 AM EDT)
Goldman Sachs initiated coverage on Hertz Global (NYSE: HTZ) with a Sell rating and a price target of $29, implying downside of 12%. Avis Budget Group (NASDAQ: CAR) was initiated at Neutral. Analyst David Tamberrino sees residual value pressure and higher costs.
"We see downward pricing pressure lowering ‘risk vehicle’ residual values and increasing vehicle depreciation costs. This limits margin expansion potential and lowers earnings growth. We see a larger impact at HTZ given its US fleet is 80% ‘risk vehicles’ vs. CAR at 65%," said Tamberrino.
"Despite significant market consolidation (36% HHI), with the largest player in the market (approx. 3x the fleet size of public peers) operating from a lower cost position, we believe it is hard for both CAR and HTZ to command sustained pricing power – even in a rising cost environment," continued the analyst.
Tamberrino added, "In a highly commoditized market (vehicles, product offering, pricing levels), we differentiate our views via our pricing survey work, fleet make-up, and interest rate exposure –which indicate HTZ should see a larger relative pricing headwind in 3Q16, is more exposed to higher vehicle cost increases and rising interest rates. For CAR, we are more in-line with the Street and see less of an impact from lower residual values/higher vehicle depreciation cost."
Shares of Hertz Global closed at $32.94 yesterday.
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