Autos have been a bright light in this otherwise dim economic recovery. With leisure and corporate travel on the rise, the car rental business has performing as well. Today’s bull is the world’s largest auto renter and a Zacks Rank #1 with some impressive financial statistics.
Company Description
The Hertz Corporation, which is a subsidiary of Hertz Global Holdings, Inc. (HTZ), is the world’s largest airport / general use car rental company.
After their merger with the Dollar-Thrifty brands, the company now operates approximately 10,400 locations in over 150 countries worldwide.
What many don’t know is that Hertz also runs one of the world’s largest equipment rental businesses, Hertz Equipment Rental Corporation. Hertz rental has 340 branches in the United States, Canada, China, France, Spain and Saudi Arabia.
Hertz also owns Donlen Corporation, a leader in providing fleet leasing and management services.
All told, Hertz generates 9 billion in revenue (2012); 7.6 billion in their rental and fleet management divisions and 1.4 billion from equipment.
Revenue & Earnings Growth
The company recently delivered a strong earnings report, beating on the top and bottom line. Hertz Global Holdings reported revenue of $2.32 billion versus top line consensus estimates of $2.30 billion. GAAP reported sales were 15% higher than the prior-year quarter’s $2.01 billion.
EPS came in hot at $0.33 compared to the Zacks Consensus for $0.32 per share. Non-GAAP EPS of $0.33 for Q4 were 38% higher than the prior-year quarter’s $0.24 per share.
GAAP EPS were -$0.09 for Q4 compared to $0.11 per share for the same prior-year quarter.
Hertz standalone revenue has growth at 8.5% CAGR over the last 4 years and is back at 2007 peak levels. Full year 2012 total profit +36% over 2007 peak levels.
Their value segment is fastest growing in on-airport rental car market and the recent Dollar-Thifty acquisitions Upgraded value leisure position.
Fiscal year 2012 U.S. revenue was up 25%; adjusted pre-tax income nearly doubled year over year.
Future Growth Strategy
Hertz sees tremendous opportunity in “off-airport” rentals which is an $11 billion market, growing at 5%-10% annually. HTZ currently controls less than 12% of the market share in that space, leaving tremendous potential upside for growth.
The company has already begun to penetrate this space and is looking to add 300+ locations annually. They are delivering on this promise going from 1,580 locations in 2007 to 2,523 locations in 2012, a gain of 60%.
The off-airport rental business is a bigger revenue generator than comparable airport locations, with longer rentals and a lower cost structure driving off-airport margins.
The company forecasts adjusted pre-tax margins to Increase to at least 14%-15% by 2014 from their current levels of just over 10%. They expect 2013 corporate cash flow of $500 million to $600 million; this is on the heels of a 39 cent per share jump (in cash flow) from FY2011 to FY2012.
At less than 11 times forward earnings, this stock should still have some upside if they continue to deliver at their current levels of growth.
The Charts
Since the lows of November 2012, shares of NTZ have been unrelenting in their bull charge, up over 65% since briefly falling below the 200 day moving average.
In the past 10 trading days alone, the stock has seen a 13% increase in share value, pushing the stocastics close to the 80 level. At this stage of the game, the short term trend is a bit overbought, but support at $19.17 and $18.25 should provide good cushioning if a pullback were to occur.
Being that shares are at 5-year highs, there isn’t much in the way of resistance, other than the broad market’s sentiment and the daily ATR (average true range) of $0.74. Use the ATR to gauge an abnormal movement in the stock.
The 50 day moving average has remained above the 200 day moving average since crossing above in October 2012 and the two are diverging, which is a positive sign for the longer term bulls.
Look for a short term pullback in the stock and use that pullback, perhaps to the $19.00 area to add some long exposure.
Jared A Levy is one of the most highly sought after traders in the world and a former member of three major stock exchanges. That is why you will frequently see him appear on Fox Business, CNBC and Bloomberg providing his timely insights to other investors. He has written and published two tomes, “Your Options Handbook” and “The Bloomberg Visual Guide to Options”. You can discover more of his insights and recommendations through his two portfolio recommendation services:
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