On Tuesday, BofA Securities initiated coverage of Hertz Global (NASDAQ:HTZ), the world’s third-largest car rental company, with a Neutral rating and a $9.00 price target. The firm stressed that while the current year’s challenges are reflected in the share price, it expects only modest improvement in EBITDA in 2025. They noted that Hertz’s earnings growth will likely be limited by a significant increase in vehicle interest expense, which is estimated at approximately 40% in 2024 and approximately 15% in 2025.
The company’s leverage ratio, currently at 4.5 times, is the highest since Hertz emerged from bankruptcy in 2021. Despite these financial pressures, BofA Securities set its price target on upside potential of approximately 25% based on enterprise value to EBITDA. (EV/EBITDA) is 8 times the company’s projected earnings for 2025.
BofA Securities’ valuation of car rental companies takes into account pre-pandemic trading multiples of 6 to 8 times. However, they placed Hertz at the higher end of that spectrum, indicating that industry fundamentals are now stronger than before the pandemic.
Hertz’s share price reflects expectations of headwinds the company will face in 2024, according to BofA Securities analysis.
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