Investing.com -- JPMorgan downgraded Hertz Global Holdings (OTC:HTZGQ) to Underweight from Neutral, citing concerns over softer travel trends and potential challenges in managing its vehicle fleet.
The bank removed its previous price target of $5, reflecting a revised outlook for the company’s financial performance.
In a note to clients, JPMorgan stated, “We lower estimates to account for softer travel trends and possible faster churn of vehicle fleet,” which could result in higher depreciation costs and lower EBITDA.
The analysts have adjusted their EBITDA forecast for 2025 down to $325 million from a prior estimate of $425 million and project just $400 million for 2026. This downward revision suggests a longer path to normalized earnings beyond 2026.
JPMorgan's report also pointed to that Hertz’s high financial leverage and the potential for litigation costs stemming from its previous bankruptcy, which had not been factored into earlier valuation analyses.
The bank expressed preference for Avis Budget (NASDAQ:CAR), noting it as a "less levered, stronger operator," which offers more attractive value in the current market environment.
Travel metrics have reportedly softened since Hertz’s last earnings report, potentially impacting transaction volume and revenue per day.
Despite a slight increase in the Manheim Index—indicative of used vehicle prices—JPMorgan remains cautious about the overall outlook. The firm explained that while rising residual values could enhance Hertz's earnings, they may also lead to quicker fleet turnover, impacting long-term profitability.
JPMorgan concluded: "We also feel confident that Avis can continue to generate positive free cash flow over the next 12-18 months that Hertz will struggle to do so amidst comparatively higher fleet costs due to earlier imprudent investment in Tesla (NASDAQ:TSLA) vehicles and other fleeting mis-steps, making Avis shares relatively more attractive which we increasingly reflect in our new relative ratings."