Hertz Global Holdings Inc (HTZ, Financial) has been making waves in the financial market with a daily change of -3.44% and a 3-month loss of -15.06%. The company's Earnings Per Share (EPS) stands at 2.37. But, is the stock significantly overvalued? This article aims to explore this question by delving into the company's valuation, financial strength, profitability, and growth. Read on for an insightful analysis.
Hertz Global Holdings Inc is a leading player in the automotive vehicle rental industry, operating under the Hertz, Dollar, Thrifty, and Firefly brands. The company offers cars, crossovers, and light trucks for rent, along with ancillary products and services. It also provides rental of industrial, construction, and material handling equipment, and fleet-leasing and fleet-management services. With a market cap of $4.50 billion and sales of $9 billion, the company's stock price stands at $14.56, which is significantly higher than the fair value (GF Value) of $3.76.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, Hertz Global Holdings (HTZ, Financial) is significantly overvalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. With its current price of $14.56 per share, Hertz Global Holdings stock is significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength of Hertz Global Holdings
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage offer valuable insights into a company's financial strength. Hertz Global Holdings has a cash-to-debt ratio of 0.04, which is worse than 92.47% of 1049 companies in the Business Services industry. The overall financial strength of Hertz Global Holdings is 3 out of 10, indicating that its financial strength is poor.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Hertz Global Holdings has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $9 billion and Earnings Per Share (EPS) of $2.37. Its operating margin is 21.92%, which ranks better than 86.91% of 1062 companies in the Business Services industry. Overall, the profitability of Hertz Global Holdings is ranked 5 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Hertz Global Holdings is -12.7%, which ranks worse than 85.31% of 980 companies in the Business Services industry. The 3-year average EBITDA growth rate is -9.9%, which ranks worse than 83.39% of 849 companies in the Business Services industry.
ROIC vs WACC
Comparing a company's return on invested capital and the weighted cost of capital offers another perspective on its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Hertz Global Holdings's return on invested capital is 9.99, and its cost of capital is 2.44.
In conclusion, Hertz Global Holdings (HTZ, Financial) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 83.39% of 849 companies in the Business Services industry. To learn more about Hertz Global Holdings stock, you can check out its 30-Year Financials here.
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