Ever since car rental company Hertz (NYSE:HTZ) announced that it’s filing for bankruptcy protection back in May, HTZ stock has garnered attention among traders and commentators. As you might expect, this attention hasn’t always been positive.
Oddly enough, the trajectory of HTZ stock hasn’t been straight down. Along the path to bankruptcy, Hertz has resisted its seemingly inevitable fate. And that fate is someday, eventually, going out of business and liquidating all assets.
As a public service, I’ve been trying to get traders to avoid HTZ stock since May. I even went so far as to say that the stock might cease to exist by next year. Now in September, I still stand by that prediction.
It’s not Hertz’s fault that the novel coronavirus, with the resultant shelter-in-place mandates and high unemployment, crushed the demand for rental cars. Yet, traders must nonetheless face the decision of whether to hold or sell their HTZ stock shares. In this instance, quitting is the right thing to do.
A Closer Look at HTZ Stock
Irrationally, traders bid the HTZ share price up to $5.53 in early June. Soon after that happened, I expected that the stock price would fall back to Earth. I provided a warning about this, saying that the price surge was part of an ill-fated “bankruptcy trade.”
As it turns out, HTZ stock has lost much of its value since that time. By the end of July, the share price had fallen to $1.45. And by Sept. 25, HTZ was trading at $1.21.
That might not look like a big price decline, but it’s huge in percentage terms. I guess you might say that I’m on a mission to prevent traders from sustaining further losses on this toxic investment.
Just consider that HTZ stock, trading slightly above $1, has trailing 12-month earnings-per-share of -$8.206. Thus, it’s difficult to justify the current share price even though it’s seemingly cheap.
Cash Crunch
If cash is the lifeblood of a business, then it’s fair to say that Hertz is on life support. By the end of the second quarter of 2020, Hertz had only $1.4 worth of cash left.
This was after a horrendous quarter in which Hertz posted a quarterly loss of $587 million. Moreover, Hertz reported a 67% year-over-year decline in revenues for the second quarter.
Hertz agreed to pay $650 million which the company owes to lenders to cover lease obligations on its fleet. That, right there, is a sizable chunk of Hertz’s remaining cash.
One source claims that Hertz is considering two new loan offers worth roughly $1 billion to $1.5 billion. Perhaps the HTZ stock bulls might view a loan as a lifeline for Hertz. Bear in mind, however, that it’s more money that the company has to pay back, and probably with interest.
Leaving a Bad Taste
Public relations is an essential part of any business’s survival. Negative press can bury even a thriving business. And, Hertz isn’t exactly thriving.
When a judge lambastes a company, there can be ripple effects as that company’s reputation will suffer. This is happening to Hertz as a judge recently chastised the company for proposing to pay 14 of its executives as much as $5.4 million in bonuses.
The disconnect between the company’s financial situation and the corporate largesse towards its executive-level brass is, indeed, striking. I’m being polite in using the word “striking,” but Judge Mary Walrath was more direct in her word choice.
Walrath suggested that the proposal is “offensive” and rejected it outright. More specifically, Walrath explained that “It seems offensive to give senior executives bonuses” since some of those executives already received retention payments before Hertz went to court.
As for Hertz’s public image, the whole situation will leave a bad taste in people’s mouths. Investors should keep this in mind when considering their positions (or lack thereof) in HTZ stock.
The Bottom Line on Hertz Stock
There’s no shame in cutting your losses in HTZ stock or just avoiding it altogether. A poor cash position and an even poorer reputation could sink Hertz and its shareholders within the next few months.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
