HTZ - Hertz

[henrysalt]

Anyone following this company?

 

Students from Columbia Business School won $100K last month on their Hertz presentation:

 

http://www.businessinsider.com/hertz-pershing-square-challenge-2013-4

 

Barron's also had a favorable article this weekend on Hertz:

 

http://online.barrons.com/article/SB50001424052748704895304578499130672330480.html?mod=BOL_twm_fs#articleTabs_article%3D0

[mankap]

Thanks for posting the link

It is a very comprehensive presentation.

[muscleman]

http://www.marketwatch.com/story/hertz-to-restate-more-results-2014-11-14-8103321

 

Hertz has accounting problems and the stock is nose diving. No wonder it is one of Whitney Tilson's favourite!  :)

 

[Chalk bag]

Just wrote something about it. Not a huge fan myself. The problem will take a while to fix.

Doesn't hurt the hope-trade though. Think it goes to 26-27 pretty quickly when CEO starts talking and put out a deck.

 

Here's my write-up:

http://dislocatedvalue.blogspot.com/2014/11/some-thoughts-on-hertz.html

[Wilson-TPC]

Good trade back up to 28-30 level. Long term investment? Don't think so.

[Sunrider]

Chalk bag - forgive me if I read through it too quickly and missed it, but I think you didn't mention that they've committed to a spin-off of HERC in 2015. This would put another $975m onto your EBITDA estimate (without adjusting any of the other figures in your first sheet) for about $2.6bn total, making EV/EBITDA ~ 6.5x .... not too bad, no?

 

C.

 

Just wrote something about it. Not a huge fan myself. The problem will take a while to fix.

Doesn't hurt the hope-trade though. Think it goes to 26-27 pretty quickly when CEO starts talking and put out a deck.

 

Here's my write-up:

http://dislocatedvalue.blogspot.com/2014/11/some-thoughts-on-hertz.html

[Chalk bag]

Chalk bag - forgive me if I read through it too quickly and missed it, but I think you didn't mention that they've committed to a spin-off of HERC in 2015. This would put another $975m onto your EBITDA estimate (without adjusting any of the other figures in your first sheet) for about $2.6bn total, making EV/EBITDA ~ 6.5x .... not too bad, no?

 

C.

 

Just wrote something about it. Not a huge fan myself. The problem will take a while to fix.

Doesn't hurt the hope-trade though. Think it goes to 26-27 pretty quickly when CEO starts talking and put out a deck.

 

Here's my write-up:

http://dislocatedvalue.blogspot.com/2014/11/some-thoughts-on-hertz.html

 

Sunrider - thanks for the heads-up, don't think you missed it. I assign no additional value created from a HERC spin. They openly said that the time-line will be extended as they restate their book, which won't be done until late 2015. I believe the spin is a 2016 event.

I also did bake in HERC related revenue and cost to get to my $1.7 Bn number. The key here is to point out that they used to run depreciation @ 240-250 / month / car where the reality is more like 325 in-line w/ CAR. While it doesn't affect cash-flow much this year figuratively speaking, I would argue that since depreciation is our best gauge for residual value, the cash-outflow in the out-years as they refresh their fleet is as real as one can get, rendering the "fcf" largely as a worthless number. Either way you cut it, they have a bunch of moneys to spend and stock is not cheap if one bakes that in.

The 6.5x is still below where it trades here. Bottom-line is that I think Hertz's problem is operational and shuffling paper left and right won't solve it.

[prevalou]

Chalk bag,

Do you account for rhe different guaranteed depreciation programs at Hertz and Avis, when you estimate depreciation cost ?

[Sunrider]

Thanks for the response - I think I understand what you're saying but as I'm not as close to the numbers, one more question - your depreciation assumption that you cite - is this only for the remaining (car rental) business or does this include HERC? My point being that, whilst it may take some time to separate, the figures you showed include HERC all the way (if I didn't misread it), whereas the figures ex HERC would look better (even if you then have to make further adjustments for your points ... although I believe they are already in your base scenario through the depreciation figures). So I'm not so much talking about the value of the HERC spinoff but rather of the fact that HERC partially obscures the financials ...?

 

Thank you!

 

Chalk bag - forgive me if I read through it too quickly and missed it, but I think you didn't mention that they've committed to a spin-off of HERC in 2015. This would put another $975m onto your EBITDA estimate (without adjusting any of the other figures in your first sheet) for about $2.6bn total, making EV/EBITDA ~ 6.5x .... not too bad, no?

 

C.

 

Just wrote something about it. Not a huge fan myself. The problem will take a while to fix.

Doesn't hurt the hope-trade though. Think it goes to 26-27 pretty quickly when CEO starts talking and put out a deck.

 

Here's my write-up:

http://dislocatedvalue.blogspot.com/2014/11/some-thoughts-on-hertz.html

 

Sunrider - thanks for the heads-up, don't think you missed it. I assign no additional value created from a HERC spin. They openly said that the time-line will be extended as they restate their book, which won't be done until late 2015. I believe the spin is a 2016 event.

I also did bake in HERC related revenue and cost to get to my $1.7 Bn number. The key here is to point out that they used to run depreciation @ 240-250 / month / car where the reality is more like 325 in-line w/ CAR. While it doesn't affect cash-flow much this year figuratively speaking, I would argue that since depreciation is our best gauge for residual value, the cash-outflow in the out-years as they refresh their fleet is as real as one can get, rendering the "fcf" largely as a worthless number. Either way you cut it, they have a bunch of moneys to spend and stock is not cheap if one bakes that in.

The 6.5x is still below where it trades here. Bottom-line is that I think Hertz's problem is operational and shuffling paper left and right won't solve it.

[Matson125]

Tilson giving it to Hertz

 

http://www.valuewalk.com/2014/11/whitney-tilson-hertz-htz/

[oddballstocks]

Tilson giving it to Hertz

 

http://www.valuewalk.com/2014/11/whitney-tilson-hertz-htz/

 

I'll summarize:  Wealthy well known (Google him!) hedge fund manager appalled when forced to use the 'regular people' rental car line.  He is shocked that people are forced to wait in line and aren't waited on hand and foot.

 

I've never rented a car where this wasn't the experience.  If rental car companies shared their booths with pay day lenders I wouldn't even bat an eye, I have the same regard for both.

 

If nothing else this email just hammers home the perception that I have of many well known investors, they're out of touch with what America really is.  You have billionaires like Ackman and Lampert trying to tinker with retail stores whose average shopper makes maybe $30k a year.  These guys are so out of touch it's laughable. 

 

I'm on pins and needles waiting for the Tilson letter to airlines.  "I was forced to walk through coach and I couldn't believe it, they forced someone to sit in a middle seat! The wine came in plastic bottles with twist off caps that passengers had paid for, and the smell... It smelled like people...NetJet has never smelled that bad, I might have to throw away my Armani suit after that experience."

[Picasso]

Seriously cringe worthy.  I never liked Tilson but this whole dramatic rant because he had to wait in line is ridiculous.  And then he has the nerve to say he was able to get someone to break the rules and use the Hertz Gold line anyway. 

 

Then he is suddenly happy because there is no longer a line at Hertz?  Doesn't that now imply a lack of sales?

 

I don't get it.  Maybe if I google "Whitney Tilson is an idiot" and "Witney Tilson is a joke" enough times I can change what the whole "Google me!" result.

 

[Jurgis]

I'll summarize

 

You forgot two things: he made reservation through deep-discount site and then expected red-glove treatment; he used his status as celebrity to go directly to CEO.

 

Honestly, 90min line at rental counter sucks. I can blame customers and shareholders. :) A lot of companies are optimized for profits and cheap pricing. Keeping extra staff for busy times cuts either into profits or into cheap prices. If you want great service, get NetJets and limo...  :-\

[CorpRaider]

...or enterprise, they pick you up.

[UNF2007]

This has worked as a nice trade for me, although more luck then skill. After reading the Intelligent Options investor, he talks about long dated options being priced inefficiently many times, because Black-Scholes doesn't account for the volatility that can be imposed by corporate actions. I bought the Jan 2016, 25 calls prior to the announcement of the new CEO, stock was around 22. I looked at this as a levered bet on positive corporate action, by the activists that wasn't being priced into the options. I'm kind of new to the LEAPS, but the price run from 22-24.70 (12.3%)  has resulted in a change in the options contract from 3.00-4.20 (40%) , which seems kind of crazy to me, given nothing really positive has happened, other then naming a CEO.

[Phaceliacapital]

What an asshole, unbelievable.

[Wilson-TPC]

Icahn brings his holding to 10.8% which is still a relatively small stake for his firm.

[ccplz]

Anyone taking a look at HTZ?

[Wilson-TPC]

Bought a stake in HTZ.

 

I like it at this price.

[krazeenyc]

I'm no fan of Whitney Tilson and think that the letter he wrote is ABSURD. But... not waiting for rental cars at airports is standard from the big 3 (Enterprise, Hertz, Avis).  Hertz Gold (or similar rewards clubs of other 2 major rental car companies) does not have a membership fee -- it costs $0 -- you just have to sign up for it online. We've rented from all 3, and use costco to make reservations -- we never have to wait. It would be a surprise and annoyance to have to wait.  Usually there is no human interaction at all -- the car (with the keys in it) is waiting for you - only if you have an issue with the car do you have to talk to an actual person.

[lincolnc]

Anyone have a view on what's going on with HTZ?

Shares are now at around $11 down from around $20 (November). 

It's literally in free fall with little news....

[TonyG]

Don't they have a billion dollar share buyback in place? essentially 20% of market cap right now

[wisborough]

non investment grade so it's getting its ass kicked

[jobyts]

Carl Icahn recently increased his stake with HTZ.

 

Could this be the reason?

 

 

Finally, #3 player Hertz’ mismanagement over the past two years has led the company to forfeit market share. This may change with the spin-off of Hertz Equipment expected in 2016, and one possible outcome is a merger with another top 10 competitor. But for now, this means that there are only two viable competitors of scale.

 

https://www.valueinvestorsclub.com/idea/UNITED_RENTALS_INC/137921

[wescobrk]

Does anyone own any Hertz on the board? I'm not interested at this price but if it drops more than half from here I might. Icahn owns 39%. I'll post this in a separate discussion, but an interesting question is a quick way to see who owns the capital structure on the debt? The equity is easy as all we have to do is pull up the latest proxy.

If Htz ends up filing bk then 39% equity holder can't do much, but if Icahn also owns senior (and maybe even some junior and unsecured debt) then he might be able to affect some preservation for stock holders as well.