This article is an excerpt from “Barron’s 10 Favorite Stocks for 2024,” published on Dec. 15, 2023. To see the full list, click here.
Hertz’s
high-profile move into electric vehicles has proven a bust, but the stock looks cheap enough to be a winner in 2024.
Barron’s had a favorable call on Hertz when the stock traded close to $18 earlier this year, but shares have dropped almost 50%, to around $10. To put it simply, Hertz’s big bet on EVs—about 11% of its fleet against an estimated 2% for rival Avis Budget Group—went bad. Repair costs for its
Tesla
-heavy fleet are high, and Hertz is getting less than it had projected when the cars are sold due to deep price cuts. Customers aren’t keen on the cars either, due to charging and range issues.
The rental-car industry, though, is an oligopoly, with over 90% of the U.S. market controlled by Enterprise, Avis, and Hertz. That means pricing should stay rational. And even with cuts in profit estimates, Hertz trades cheaply at 8.6 projected 2024 earnings, while its market value of $3.1 billion is less than half that of the somewhat larger Avis. There’s also a chance that the investor group that controls Hertz with a nearly 60% stake could offer to buy out public shareholders if the stock remains cheap.
The current stock price is “overwhelmingly attractive for patient investors,” wrote Chris Woronka, a Deutsche Bank analyst.
Write to Andrew Bary at [email protected]
Read the full article here
