alright fellow regards, here it goes. been building a position in HTZ ahead of november 5th earnings and i think there's a pretty interesting setup here...
not saying it is suddenly a great company but there are a few things lining up that make the risk/reward interesting to me fundamentally as a turnaround company.
1. the turnaround is actually starting to show in the numbers
Q2 was already a decent improvement:
\- revenue up 10% yoy to $2.4b
\- adjusted EBITDA improved $63m yoy to $81m
\- revenue per unit up 8%
\- US airport rental revenue per day up 12%
\- management reported 200 consecutive days of positive yoy rental revenue per day growth as of july!
these are real improvements for a company that's been struggling with profitability and fleet costs.
obviously still a lot of work to do, but if this trend continues, the market might have to reprice it from this \~$2.07 level today.
2. q3 should be an interesting quarter for travel demand
this is probably the biggest reason i'm interested in the upcoming earnings.
FIRST OF ALL: q3 covers july through september, which captures peak summer vacation travel and rental demand in the US.
FIRST OF ALL (bonus): it also captures the final 19 days of the world cup, which brought a lot of international visitors into north america overall. remember the 40% jump in HTZ rental demand in Kansas city for q2?
i wouldn't overstate the world cup effect. hertz actually said its contribution to q2 rental revenue per day growth was less than half a percentage point but combined with peak summer travel, stronger rental pricing and potentially better fleet utilization (which was the goal), i think there's a reasonable chance q3 could surprise.
the big question is whether all that demand actually translated into better margins and profitability and my theory is yes.
3. the market is already expecting improvement, but how much?
expectations are around $2.62b in revenue and $0.21 EPS so a mediocre quarter isn't enough to send the stock flying, but what i'm looking for is an outsized beat, continued improvement in fleet depreciation costs and ideally some positive commentary about q4 and the turnaround progressing faster than expected.
4.. short interest makes things even more interesting
recent short interest is around 123,000,000 which is a lot of bets against the company and to be fair, there are legitimate reasons for it. hertz has high debt, operates in a capital-intensive industry, and still has a lot to prove but if earnings come in significantly better than expected, that's also a lot of potential buying pressure if shorts start covering.
not saying this is the next meme stock or that some massive squeeze is inevitable. just that the short positioning could amplify a move if the fundamentals give buyers a reason to step in.
5. there's also the oro mobility development which probably is less relevant to earnings but i'm mentioning it for the long termers
hertz recently announced an $80m outside investment into oro mobility, its autonomous and driver-led fleet business.
i think this is worth keeping an eye on.
hertz already has a massive fleet infrastructure and relationships across the mobility industry, so there's potentially an opportunity to leverage that beyond traditional car rentals.
way too early to assign much value to it, but it's another interesting development for a company most people probably just associate with rental cars and debt.
what could go wrong?
a few things sure (but i'm bullish anyway):
\- strong summer demand might already be priced into expectations
\- fleet depreciation and financing costs could eat into profitability
\- debt remains a major problem
\- the remaining world cup impact might be minimal
management could still disappoint on guidance even with a decent earnings beat
my position
currently holding november 13 $2 calls and considering adding more this week. i'm treating it as a speculative earnings