MKM Partners Pounds Table on Hertz Global (HTZ) Post Q4 and Ahead of Catalyst

February 26, 2013 10:47 AM EST
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Price: $20.76 --0%

Rating Summary:
    1 Buy, 9 Hold, 1 Sell

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    Up: 6 | Down: 10 | New: 6
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MKM Partners reiterated its Buy rating and raised its price target on Buy-rated Hertz Global (NYSE: HTZ) from $26 to $28 following "solid" Q4 results and "strong" 2013 guidance.

"The strength in the guidance was broad based and, in our view, conservative, based on current trends and the leading indicators we track," analyst Christopher Agnew states. "The company is hosting an investor day on April 2 that we believe will be an important catalyst," he also notes.

Agnew gave six reasons to be incrementally more positive: "(1) HTZ's strategic decision to minimize participation with less profitable commercial accounts is incrementally positive, in our view, and supports a potential inflection point in corporate pricing trends. We believe this supports current strong leisure trends, which HTZ confirmed. (2) HTZ increased FCF guidance to $500-$600mn from $400mn in 2013, and excluding the one-time ramp in non-fleet capex, the FCF run rate would be closer to $800mn. (3) Dollar Thrifty cost synergies are now expected to be $300mn in total, up from $200mn previously. The company introduced a revenue synergy goal of $300mn (leveraging HTZ partnerships, DTG location expansion, Europe and Technology) that we believe has upside. (4) U.S. per-unit fleet costs are forecast to decline 4%-5% y/y, an incremental improvement from worldwide fleet cost guidance of flat to down 1%-2%. (5) HERC volume and pricing assumptions of 10%-12% and 2%-3%, respectively, and incremental margins of 55%-60% are beatable, in our view, given the leading indicators for non-residential construction, particularly the commercial construction component of the Fed Loan Officers survey. (6) Donlen revenues increased 18% y/y in 4Q, and Off-airport increased 12.4%."

The firm's new 2013 and 2014 EBITDA estimates are $2.2bn and $2.6bn, up from $2.1bn and $2.5bn, respectively, and their new 2013 and 2014 EPS estimates are $1.90 and $2.31, up from $1.74 and $2.22, respectively.

For an analyst ratings summary and ratings history on Hertz Global click here. For more ratings news on Hertz Global click here.

Shares of Hertz Global closed at $19.04 yesterday.

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