Autonomous Disruption And Rising Costs Will Hurt Traditional Rentals

Key Takeaways

• Hertz faces rising threats from autonomous mobility, sustainability mandates, and electrification challenges, all of which jeopardize revenue growth and pressure operating margins.
  
• Intense competition, volatile resale conditions, and heavy debt levels restrict financial flexibility, elevating risks to future earnings and long-term value.
  
• Operational improvements, tech upgrades, and a younger fleet are driving cost reductions, enhanced margins, and setting the stage for sustained profitability and growth.

Catalysts

Operates as a vehicle rental company.

• Hertz's core business model is increasingly threatened by the acceleration of autonomous vehicle adoption and emerging integrated mobility platforms, which could drastically reduce consumer reliance on traditional rental cars and fundamentally undermine long-term revenue growth for the company.
  
• The broad transition to environmental sustainability and tightening emissions regulations is likely to drive higher compliance and fleet conversion costs for Hertz, while public resistance to large-scale fleet-based operations could further suppress demand, undermining net margins over the next several years.
  
• Persistent operational challenges with electric vehicle investments-including difficulties electrifying the fleet, higher depreciation, uncertainty around residual values, and ongoing supply chain delays-raise the risk of substantial capital expenditure overruns and future write-downs, placing continued downward pressure on earnings and operating margins.
  
• Hertz faces sustained downward pricing pressure and lower rental yields due to intensifying competition from both entrenched peers and disruptive mobility startups; in combination with volatile used vehicle resale conditions, this will expose the company to increasing revenue and margin volatility as fleet depreciation costs become more unpredictable.
  
• The company's high debt burden, recurring liquidity concerns, and looming multiyear maturities force higher non-fleet interest expenses and restrict financial flexibility, limiting its ability to invest in necessary growth or transformation initiatives, which will likely dilute future earnings and threaten long-term shareholder value.

Hertz Global Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Hertz Global Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Hertz Global Holdings's revenue will decrease by 0.0% annually over the next 3 years.
• The bearish analysts are not forecasting that Hertz Global Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Hertz Global Holdings's profit margin will increase from -29.6% to the average US Transportation industry of 4.8% in 3 years.
• If Hertz Global Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $415.6 million (and earnings per share of $1.29) by about September 2028, up from $-2.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 3.3x on those 2028 earnings, up from -0.7x today. This future PE is lower than the current PE for the US Transportation industry at 25.4x.
• Analysts expect the number of shares outstanding to grow by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.32%, as per the Simply Wall St company report.

Hertz Global Holdings Future Earnings Per Share Growth

Risks

• Hertz is demonstrating strong execution in its multiyear transformation program, with operational initiatives such as disciplined fleet management, asset rotation, and direct cost reduction already delivering a nearly $500 million year-over-year improvement in adjusted corporate EBITDA, which, if sustained, may bolster future earnings and support higher share prices.
  
• The company is investing in technology modernization, exemplified by the replacement of its legacy revenue management system with a sophisticated Amadeus platform, which is expected to enable dynamic pricing and improved utilization, potentially unlocking further margin accretion and revenue growth.
  
• Hertz has taken advantage of a favorable residual value environment and is leveraging partnerships like Cox Automotive to digitize and optimize retail vehicle sales, which has resulted in the highest second quarter retail sales in five years and a meaningful net gain on disposition; these initiatives could enhance top-line growth and support gross margins in coming years.
  
• The company's shift toward a younger fleet-80% of the U.S. rental fleet now being less than a year old-has directly reduced depreciation and maintenance costs, while also improving customer satisfaction and operational reliability, providing a solid foundation for long-term improvement in net margins.
  
• Management has articulated a clear path toward sustainable profitability, targeting $1 billion in adjusted corporate EBITDA by 2027, and is already seeing measurable gains from increased fleet utilization, improved demand generation, and loyalty program growth, all of which suggest that the business could be on a recovery trajectory that would benefit both revenue and earnings per share in the long run.

Valuation

• The assumed bearish price target for Hertz Global Holdings is $3.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hertz Global Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $6.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $8.6 billion, earnings will come to $415.6 million, and it would be trading on a PE ratio of 3.3x, assuming you use a discount rate of 12.3%.
  
• Given the current share price of $5.43, the bearish analyst price target of $3.0 is 81.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.