Hertz Global (HTZ) Gains on Speculation Auto Dealers Could Swoop In

(Updated - June 24, 2020 9:11 AM EDT)

(updated to add analyst comments)

Hertz Global (NYSE: HTZ) gains on Jefferies analyst speculation AutoNation (NYSE: AN) or CarMax (NYSE: KMX) can buy the company out of bankruptcy.

Analyst Hamzah Mazari commented: "Our channel checks suggest that KMX and AN among others could be eyeing HTZ in bankruptcy. The most obvious way would be to bid for 150k of used cars which are likely to be sold to pay ABS lenders but also to defleet in general given current demand and need to shore up cash. Sale of 150K cars assuming average used car price and what we view to be make/model of the fleet suggests sale could fetch $3bn. Another approach though less probable would be if the auto dealerships also consider there to be value in HTZ branch locations/footprint (10,200 locations globally, 3,000+ in the US vs KMX 200+ and AN 300+ locations). Note as of 5/31, KMX had ~ $660mm of cash and ~$1.08B in unused capacity on their revolving credit facility with no near-term maturities (earliest is in 2023) and had also referenced near-term investments to be focused on “opening up new buying channels”. Keep in mind the car rental business is as much a used car dealership as it is a purely rental business. The conspiracy theory for example on Enterprise has always been that it is a used car dealer dressed up as a car rental player. Enterprise margins are also probably 2x that of the publicly traded car rental names. Auto dealership margins typically run higher than car rental on average."

UPDATE 2: In addition to the takeover speculation, the analyst also said they are also hearing that HTZ share owners have formed an equity committee. He said this is quite unusual in bankruptcy but has been happening more and more particularly in oil and gas bankruptcies due the fluctuation in commodity prices.

"We think one was formed for HTZ share holders given the rebound in stock price due to speculators jumping into the stock, the rebound in used car values (coming in better than expected) and the potential benefit the car rental industry could see in the wake of COVID-19 as people seek alternatives to air travel," Mazari commented. "While we think these are positives for the car rental industry, it is unlikely that we see a return to 2019 volumes any time soon which still requires players to defleet including HTZ."

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