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Hertz Stock a Sell After Dumping a Whole Pile of Bad News

Accounting problems and other costs force Hertz to pull guidance


Hertz (HTZ) is going to have to try a lot harder than this. Hertz stock tumbled more than 10% Wednesday morning after the car-rental company slashed its full-year guidance on a litany of woes.

hertz stock, htz stockAfter a great 2013 in which HTZ stock rose more than 60% to beat the broader market by a whopping 30 percentage points, the car rental company has hit the skids. Although volatile throughout 2014, Hertz stock was up 23% for the year-to-date before Wednesday’s drubbing. HTZ stock is now flat YTD.

Confidence in Hertz stock is shot.

Where to begin? Hertz essentially withdrew its full-year profit forecast, saying results will be  “well below” projections because of costs to review its accounting (always a bad sign) and industry-wide vehicle recalls (thanks, General Motors [GM].)

Hertz stock had recovered losses and then some after disclosing the accounting issues in June. The company said an internal audit found three-year’s worth of problems. In addition to restating 2011 earnings, Hertz has to revise results for 2012 and 2013 too.

That was bad, but the market forgave Hertz pretty quickly — that is, until today.

Hertz Stock Hurting on All Fronts

Costs related to the audit were only one piece of bad news Hertz dumped on the Street Wednesday. The company doesn’t have a big enough fleet to meet demand in wake of recalls because GM and other manufacturers have recalled 44 million cars worldwide this year.

Other operational pressure have conspired to raise costs at Hertz, the company said, so say goodbye to margins.

If that weren’t enough, Hertz said it may have to delay the spinoff of its equipment rental business, which was slated for the first quarter of 2015.

Taken all together, there is no shortage of reasons to dump Hertz stock. The Street is flying blind on this year’s estimated results and can’t trust prior periods either. The first- and second-quarter numbers are still pending after series of delays. It’s a mess.

At least two analysts have already downgraded Hertz stock to hold from buy, and even that seems charitable. The Street won’t know what to do with Hertz stock until the audited numbers are in. It’s looks like 2013’s amazing run was built on bad information.

This accounting debacle is going to hover over HTZ for some time. It’s rare to find a stock worth buying or holding amid an accounting scandal, since there’s no telling how it will all shake out. Why bear that risk?

That makes the market’s knee-jerk reaction looks reasonable enough. Sell Hertz stock.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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