Here’s Why Carl Icahn Is Bullish on Hertz
Hertz Global Holdings, Inc. (NYSE:HTZ) rose almost four percent in pre-session on Wall Street, while Carl Icahn further increased his stake in the car rental stock. In a paper released by the Securities and Exchange Commission, the activist investor now holds 14.34% of Hertz stock against 11.7% at end-September.
Hertz stock is at a 2015 low, but news of Icahn’s investment has sent shares soaring over six percent on Wall Street, reversing its bearish course to trade at $14.65 per share. Hertz shares were trading in the $23.00–$25.00 range just a year ago. Icahn’s cash injection might well result in an injection of shareholder confidence, easily pushing Hertz stock back to the $20.00 range.
Icahn has gradually increased his position in Hertz. He took an 8.48% stake in the famous car rental company, which has struggled to manage the impact of errors in its accounts in recent years. Icahn, a billionaire and activist investor with a reputation for interfering heavily in altering the corporate strategy of companies in which he chooses to invests, said in 2014 that Hertz stock was undervalued. Presumably, Icahn feels that Hertz is even more undervalued today and his significant stake suggests he is convinced of an imminent turnaround.
Hertz, which also owns the Dollar and Thrifty car rental brands, is determined to improve its performance and Icahn’s activism will contribute significantly to that effort. The company has already proven it is on course for a turnaround. It has named a new CEO and sold its equipment-rental business. Overall, Hertz shares have lost more than 40% in 2015 and the stock is starting to look like a bargain at its current price, considering the potential upside.
Icahn Is Reviewing Accounts
In June 2014, Hertz said it would review all of its accounts for the past three years after discovering accounting errors. The errors prompted the downward spiral, as the company was forced to admit that its annual results would fall below the forecasts due to operational problems in car leasing activities, amenities, and other accounting costs.
Icahn, who has tightened his already strong grip over Hertz, already being its largest shareholder, has gained board seats over the course of 2014 and 2015, also influencing the decision to appoint a new CEO in the form of John Tague, a former president and CEO at United Airlines. (Source: “With Icahn’s Blessing, Hertz Names New CEO,” Forbes, November 20, 2014.)
Hertz has been plagued by a string of accounting issues, which has meant reinstating several years of financial results dating back to 2011. By correcting previous mistakes, its reported profit has taken a hit and it has engaged in increasingly aggressive cost-cutting.
Hertz has also attracted other activist investors, like Larry Robbins’ Glenview Capital Management, Barry Rosenstein’s Jana Partners, and Jeffrey Tannenbaum’s Fir Tree. They are among Hertz’s top 10 investors. (Source: “Carl Icahn Revs Up Stake In Hertz To 14.3%,” Forbes, December 8, 2015.)
Hertz has become a “leaner” yet more innovative business since Icahn started to influence the world’s top car rental company through his board activism. Hertz has entered into exclusive negotiations with Loxam Group to give up some of its European locations involved in the so-called Hertz Equipment Rental Corporation (HERC) spinoff, completing the deal at the end of October.
Hertz, which also owns several car rental brands, unveiled a project last year to split its equipment rental business into a separate entity listed on the stock exchange. Despite the sale and an overall good performance, currency headwinds impacted Hertz’s earnings, according to Zacks. (Source: “Hertz Slumps as Q3 Earnings Miss Estimates, Updates View,” Zacks, November 10, 2015.)