One analyst worries about long-term future of Hertz.
The dents and dings keep on pounding at Hertz.
The latest hit to the Estero-based car rental giant comes from a Jan. 23 article on the popular investor’s blog Seeking Alpha. Titled “Hertz is Driving Down a Hill and the Brake Lines are Cut,” and written by quantitative investment strategy firm Napoleon Capital, the post highlights the Hertz Catch-22: debt and how to get out of it.
“(Our) worry is Hertz is caught in a downward spiral,” the article states. “Its massive debt prevents it from improving their core business; as a result their precarious financial situation will likely deteriorate further and lead to an increase in borrowing cost. This would make the debt even more crushing, and so on it would go.”
The post encapsulates other issues that have dogged Hertz for years, through management changes, accounting issues, and significantly, a disruptive shift in the rental car industry that’s seen customers migrate to other options. The latest issues, according to Napoleon Capital, include:
• Hertz “raises debt using asset backed securities with short maturities,” which leaves it “vulnerable to interest rate increases and a credit rating downgrade.”
• Shares are down 80% since its 2014 high.
• It is losing market share to ride-sharing companies like Uber and Lyft, particularly for short trips and in business travel — former Hertz strongholds.
“Typically,” the article adds, “a large company would respond to a significant change in their industry by investing money to better compete in an altered environment.”
But Hertz can’t do that, the authors posit, because any innovation or acquisition is “stifled by the large amounts of debt,” totaling $17 billion, in addition to “stagnant revenue.”