Hertz Global (HTZ): Upgrading On Enhanced Growth Profile - Barclays

December 15, 2010 10:35 AM EST Send to a Friend
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Price: $25.02 +2.71%

Rating Summary:
    2 Buy, 5 Hold, 1 Sell

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Today's Overall Ratings:
    Up: 11 | Down: 14 | New: 51
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Hertz Global (NYSE:
HTZ): Upgrading On Enhanced Growth Profile - Barclays
Barclays U.S. Autos & Auto Parts team is upgrading Hertz Global (NYSE: HTZ) to Overweight from Equal-Weight with a $20 price target (prev. $15) implying 47% of upside.

- Their 2011 and 2012 estimates are above consensus.

Last week’s bullish Investor Day reinforced Barclays' view that the market underestimates HTZ’s earnings growth potential, which should benefit from management's strategy to grow off-airport and deep-value sales and margins and from HTZ’s exposure to the equipment rental market, which the firm believes is in very early stages of recovery.

Hertz’s impressive 3-year financial targets are likely still conservative. The company initiated bold goals suggesting about 50% annual growth in pretax income through 2013. They still view these targets as conservative, especially Hertz’s assumption of 7-8% annual revenue growth, in light of its 14-16% CAGR goal for equipment rental, and as they estimate its growth initiatives should allow car rental to grow in the double digits.

Hertz’s strong push into the off-airport and value markets alone should boost its car rental (RAC) annual revenue growth by 5% above the industry. This should enable HTZ to materially outpace its car rental peers over the next few years.

The equipment rental (HERC) business is becoming a major engine for earnings growth. 3Q10 was an inflection point for HERC, as revenues saw their first y-o-y increase since the downturn, following a 40% decline since peak sales. Management guided to 2011-13 sales growth in the mid-teens, which should enable EBITDA to grow by 20-30% a year, based on the 75% incremental margins the business can generate.

Barclays' new $20 price target is 7.4x their above-consensus 2012 EBITDA of $1.65bn. While HTZ has had a strong performance recently, firm's price target suggests there is large additional potential as investors turn their focus to HTZ’s 2012 earnings, encouraged by the mid-term outlook. Over time, they see even more upside as HTZ continues to reduce its net corporate debt through large expected cash generation

Notablecalls: Barcap has the ability to move these stocks. Check out their Avis-Budget (CAR) upgrade on March 18, the stock was up almost 10% that day and went up another 50% over the next month or so. Same analyst, Brian Johnson. (He is 4th rated, btw).

HTZ has a nice chart and I think people will greet this upgrade with some additional buy interest.

$14.25-14.50 is the range I'm looking at presently.

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