Goldman Sachs Analysis of Hertz (HTZ) Post-Spin

Goldman Sachs maintained a Neutral rating on Hertz Global (NYSE: HTZ) with a price target of $28.00. Comments follow an analysis of its planned separation of its core rental carbusiness (RAC) from its equipment rental business (HERC).

Analsyt Afua Ahwoi said, "We have three key takeaways from this analysis: (1) Our scenario analysis suggests a proforma 2015E EPS range of $2.11- $2.18 depending on debt paydown, shares buybacks and target leverage ratios. (2) Buy backs would be more accretive than debt paydown and (3) Implied leverage of 2.0X after Hertz’s guided actions (buy back + debt paydown) vs. CAR at 3.4x suggests the standalone car business could likely support more debt."

"We are on the sidelines until we have greater clarity on improving execution by Hertz as it seeks to balance its fleet supply with demand and expand utilization particularly after the DTG acquisition," he added. "We also expect a major capital allocation event is at least 12-months out, per management comments. Finally, our SOTP approach to valuation suggests limited upside. On the positive side, the valuation discount versus Avis (1.6X) is compelling given our view that both names should at least trade at parity. Also, ytd used car values (as reported by Manheim) are holding up better than we expected which could suggest upside to our 2014 estimates as it could reduce fleet costs."

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 $27.53 yesterday.

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