Options Trade – Hertz Global Holdings, Inc. (NYSE:HTZ) Calls
Sunday, February 23, 2014

**OPTIONS TRADE: Buy the HTZ Jun 2014 30.000 call (HTZ140621C00030000) at or under $1.40, good for the day. Place a protective stop limit at $0.55 and a pre-determined sell at $2.50.

by Ian Harvey

February 23, 2014

Introduction

Rental car company, Hertz Global Holdings, Inc. (NYSE: HTZ) is scheduled to report its fourth quarter results before the market opens on February 24. Headed into the quarterly report, analysts have forecast earnings of $0.32 per share. The stock is down 6.2% so far in 2014.

Hertz has enjoyed a handy run over the past year, with shares up about 30% in the trailing 12-month period.

Even though Credit Suisse initiated Hertz with a mere Neutral rating the analysts gave a $29 price target on Hertz, after the stock closed at $26.16 on Friday 7th February. This implies close to 11% upside if the price target is hit. Thomson Reuters’ consensus price target from Wall Street analysts is $30.10.

If you have ever rented a car over a holiday weekend, you probably could not help but notice how much pricing power these car rental companies have when times are good. Hertz has close to 25% market share, and the competition seems to be that the providers (rental companies) all are no longer intent on price wars. Gone are the days of $18 to $22 per day.

Company Details

Hertz Global Holdings, Inc. (Hertz Holdings) is a holding company. The Hertz Corporation (Hertz) is its operating company and a direct wholly owned subsidiary of Hertz Investors, Inc., which is wholly owned by Hertz Holdings.

Its business operates in two segments: rental and leasing of cars, crossovers and light trucks (car rental), and rental of industrial, construction and material handling equipment (equipment rental).

In its equipment rental business segment, it rents equipment through approximately 340 branches in the United States, Canada, France, Spain, Italy, China and Saudi Arabia, as well as through its international licensees.

In October 2013, the Company announced that its wholly owned subsidiary Hertz Equipment Rental Corporation (hertzequip.com) has opened a 15,000 square foot location in Paso Robles, California to serve the growing non-residential construction, oil and gas, and agricultural markets.

Key Statistics for HTZ

Current P/E Ratio (ttm) 18.3669
Estimated P/E(12/2013) 16.1955
Relative P/E vs. SPX 1.0838
Earnings Per Share (USD) (ttm) 1.4973
Est. EPS (USD) (12/2013) 1.6980
Est. PEG Ratio 0.6478
Market Cap (M USD) 12,346.98
Shares Outstanding (M) 448.98
30 Day Average Volume 8,034,160
Price/Book (mrq) 4.3764
Price/Sale (ttm) 1.0843
Dividend Indicated Gross Yield -%
Cash Dividend -
Dividend Ex-Date
5 Year Dividend Growth -
Next Earnings Announcement 02/25/2014

Technical Analysis

Hertz Global Holdings has a 52 week low of $18.12 and a 52 week high of $29.81. The stock has a 50-day moving average of $26.73 and a 200-day moving average of $24.86. The company has a market cap of $11.606 billion and a P/E ratio of 36.68.

Earnings

When Hertz last reported earnings in November, the company posted better than expected earnings and revenues. Quarterly revenues rose 22%, primarily a result of the company's acquisition of Dollar Thrifty. The results helped the stock end 2013 on a strong note, but it has traded lower through the first part of 2014. However, the stock recently got a nice boost on news that the company had entered into a partnership with Costco (COST) to bring short-term van rental to Costco customers. The news sent the stock up 4% immediately following the announcement. If HTZ can once again post better than expected earnings and revenue, there is a good chance that it can build on its recent strength and trade even higher.

Analysts currently expect a 7% increase in sales and a 22% growth in earnings for 2014. If and when these van service rental and similar programs expand more materially, look for analysts raise their estimates. With Hertz trading at 13 times this year's current estimated earnings it appears to be priced on the cheap side considering its growth and the potential of a limited partnership with Costco.

Hertz Growth

Hertz landed a deal with Costco to provide van rental services to its members. The deal is with 25 Costco's in the U.K. that allow members to rent a van for the equivalent of $22 per hour.

Hertz is already the largest car rental brand in the world. It has been seeking ways to generate additional revenue and profits by expanding its van service over the last five years. Through this deal, Hertz will handle the fleet and all customer transactions as if the rental occurred on its own property.

Costco benefits from increased purchases from its members and possibly enticing more memberships to be sold, which is how Costco makes the majority of its income. The wholesale club has little expense and risk while Hertz handles everything.

The deal is obviously a potentially good move for both companies, but the limited number of 25 Costco locations in the U.K. isn't a game changer for either company. Hertz currently operates 10,400 locations, whereas Costco operates 648. However, if the program is successful you can expect the partnership to be expanded to many other Costco locations, and possibly to other Hertz partners around the world.

Hertz has scored similar deals with the Casino supermarket chain in France, certain IKEA stores, and certain Lowe's stores. Look for expanded and new partnerships in the future.

Analysts Opinions

Stock analysts at Barclays increased their price target on shares of Hertz from $26.00 to $29.00 in a report issued on Friday, 14th February. The firm currently has an “overweight” rating on the stock. Barclays’ price target suggests a potential upside of 13.28% from the company’s current price.

Also, Hertz has been the subject of a number of research reports:-

• Analysts at Credit Suisse initiated coverage on shares of Hertz Global Holdings in a research note on Monday. They set a “neutral” rating on the stock.

• Separately, analysts at MKM Partners raised their price target on shares of Hertz Global Holdings from $28.00 to $33.00 in a research note on Thursday, January 16th. They now have a “buy” rating on the stock.

• Finally, analysts at Goldman Sachs downgraded shares of Hertz Global Holdings from a “buy” rating to a “neutral” rating in a research note on Wednesday, January 15th. They now have a $29.00 price target on the stock, up previously from $27.50.

One equities research analyst has rated the stock with a sell rating, two have issued a hold rating and six have given a buy rating to the company. Hertz Global Holdings currently has an average rating of “Buy” and an average price target of $27.91.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the HTZ Jun 2014 30.000 call (HTZ140621C00030000) at or under $1.40, good for the day. Place a protective stop limit at $0.55 and a pre-determined sell at $2.50.



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