JPMorgan Downgrades Hertz Global Holdings
JPMorgan has downgraded Hertz Global Holdings (OTC:HTZGQ) from Neutral to Underweight, expressing concerns about declining travel trends and vehicle fleet management challenges.
The bank removed its previous price target of $5 and revised its outlook on Hertz’s financial performance. In a client note, JPMorgan indicated, "We lower estimates to account for softer travel trends and possible faster churn of vehicle fleet," which could lead to increased depreciation costs and reduced EBITDA.
Revised EBITDA Forecasts
JPMorgan adjusted its EBITDA forecast for 2025 down to $325 million, from $425 million, and projected $400 million for 2026. This suggests Hertz might face a longer path to normalized earnings beyond 2026.
The report highlighted Hertz’s high financial leverage and possible litigation costs from its previous bankruptcy, factors that were not considered in earlier evaluations.
Preference for Avis Budget
JPMorgan prefers Avis Budget (NASDAQ:CAR), citing it as a "less levered, stronger operator" that provides better value in the current market environment. Travel metrics have reportedly softened since Hertz’s last earnings report, potentially affecting transaction volume and revenue.
While there has been a slight uptick in the Manheim Index—suggestive of rising used vehicle prices—JPMorgan remains cautious. The firm noted that while higher residual values could benefit Hertz's earnings, they might also result in quicker fleet turnover, negatively impacting long-term profitability.
Conclusion
JPMorgan emphasized confidence in Avis's ability to generate positive free cash flow over the next 12-18 months, contrasting with Hertz's anticipated struggles due to higher fleet costs from previous investments in Tesla vehicles and other missteps, making Avis shares a relatively more attractive option.
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