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Hertz Global Holdings, Inc Goes Boom After Horrible Earnings Miss

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Hertz Global Holdings, Inc (NYSE:HTZ) stock was up by an incredible 18 percent on Wednesday morning. The firm’s big move on Wednesday morning was something of a mystery. It boomed despite the fact that it released an earnings report on Tuesday that disappointed almost everyone.

It seems, however, that Wall Street analysts weren’t unified in disappointment. Ben Levisohn of Barrons says that the stock price is rising because of a strong turnaround performance. That performance was lauded in a report from MKM partners. Hertz CEO Kathryn Marinello reckons the firm had made significant turnaround progress by the end of the June quarter. Wall Street seems to agree.

Hertz stock stutters, then flies

Right after we saw the earnings report on Tuesday afternoon, nobody on Wall Street seemed to see the boom coming. As Claudia Assis over at MarketWatch reported, the shares were flat and trading toward the red after the numbers were published.

Hertz Global Holdings Inc stock flies

The reason for the initial stutter was the revelation of wider-than-expected earnings in the quarter. The firm said it lost a total of $158 million, or $1.90 per share, in the three months through June. Adjusted for one off expenses, losses came in at 63 cents per share.

Analysts following the company on Wall Street were expecting a loss of about 20 cents per share by consensus.

The reason for the big earnings miss appears to be an unexpected increase in vehicle depreciation. Car rental businesses often peg their earnings to the value of their big asset: used cars.

Then came this morning’s pronouncements. MKM Partners’ Christopher Agnew wrote that “negative pricing and fleet cost trends bottomed in 2Q along with HTZ rebalancing and rightsizing its fleet.” He reiterated a Buy rating on the firm despite the poor earnings report.

Hertz Global Holdings, Inc may survive yet

One of the big arguments against Hertz Global Holdings, Inc (NYSE:HTZ) in recent years has been its exposure to Uber and Lyft. If these ride sharing services offer a cheap, efficient way to travel, who is going to rent a car?

After that, if the technology bulls are right, we’re going to be living in an era of autonomous transport. What value, if that’s the case, would a firm like Hertz add? Adam Jonas of Morgan Stanley has been promising self-driving Teslas for years at this point. He reckons that vehicle under-utilization is the biggest problem that cars face.

In his view, a perspective apparently shared by Elon Musk, cars should be in use more hours of the day than they are now. If capita utilization goes up, the price of transport should go down. Though Tesla Inc hasn’t made anything but vague promises on this front, the firm is apparently ready to embrace a future where its vehicles are rented rather than sold. That, according to the bears, could be the death-knell for firms like Hertz.

We don’t know how that’s going to play out just yet. Though what is clear is that short sellers are really taking a hit on. It’s possible that some of the massive increase in share value is from a demand spike from short sellers.

When share prices begin to rise and short sellers try to cover losses, there can sometimes be a short-lived surge in share price. We’ll have to wait out the rest of the week to see if that’s the case with Hertz Global Holdings, Inc (NYSE:HTZ).

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Paul Shea

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