Zipcar's (ZIP) Business Model is Too Niche, Investors Should Try Hertz (HTZ) - Cramer

June 12, 2012 2:31 PM EDT
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Like the age-old Coke/Pepsi challenge, Hertz and Zipcar have been at the forefront of consumer debate for as long as one can remember. Well, maybe forefront is a little extreme. Renting by the hour is certainly preferable to having to lug around an auto all day for a flat rate, right? Kind of?

According to Cramer, there's no debate when it comes to which stock should not be "rented" to investors' portfolios. But first, he'll evaluate both!

On his Mad Money talkie-box program Monday, Crames debated which stock was better: Hertz (NYSE: HTZ) and its luxurious yellow logo, or quirky Zipcar (Nasdaq: ZIP), which IPO'd just over one year ago (and also has a cool logo).

Cramer pointed to the sentiment surrounding Zipcar upon IPO. The company was supposed to "revolutionize" car sharing with rapid expansion and a veritable cornucopia of profits for all. Unfortunately, profits are slim right now; shares are down 44 percent or so from the IPO opening price of $18.

Zipcar has about 500,000 members using 9,000 vehicles. Cramer contended there are really no barriers to entry in this market, which is exactly what Hertz -- and peers Avis Budget (NYSE: CAR) and Dollar Thrifty (NYSE: DTG) -- are banking on. Further, he thinks the model is good for a niche market which may have already peaked.

Looking specifically at Hertz now, Cramer said the company is leading in the very non-niche market of airport rentals. Aside from airports, Hertz has plenty of room to grow in emerging markets like China and Brazil. The company also gets about 15 percent of top-line growth from equipment sales.

Oh, and Hertz also has kiosk-based systems which don't even need to be staffed. Customers simply swipe an RFID card to unlock and start cars.

(Can you see where this is going?)

Overall, though Zipcar is going for 29 times earnings, its growth rate is variable right now. Despite being much more mature, Hertz is at just 8 times earnings with a 12 percent long-term growth rate, making it Cramer's pick.

Shares of Zipcar are off 4.9 percent on the session while Hertz shares are up 0.4 percent.

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