Ah, how time flies. It seems like just yesterday that embattled Florida-based rental-car chain Hertz (NASDAQ:HTZWW) was the Reddit short-squeeze target du jour. Today, you can still trade the company through HTZWW stock, but the company isn’t widely viewed as an underdog/hero like it once was.
As you may recall, the onset of the Covid-19 pandemic wreaked absolute havoc on Hertz. In early 2020, people didn’t even want to go outside, much less rent a car.
Sadly, the century-old car-rental icon filed for bankruptcy in May of that year. Among Hertz’s biggest problems was its sizable and persistent debt load.
So, has the company learned its lesson and eased up on its debt issuance? The answer might be a gut-punch to current and prospective investors as Hertz takes action with confidence, but not necessarily with prudence.
A Closer Look at HTZWW Stock
In case you didn’t get the memo, Hertz was delisted from the New York Stock Exchange in October 2020.
In what amounts to a modern miracle, Hertz managed to emerge from bankruptcy the following June 30. The next thing you know, Hertz was back on the financial markets.
Technically speaking, HTZWW is a warrant (hence, the Ws at the end of the ticker). Regarding this, you can check with your broker to determine what you’ll be permitted to buy and sell.
In any case, the warrant’s price has been on a downtrend lately. It traded at $19 on Nov. 9, only to sink to $15 and change at this writing.
If you’re able to trade the warrants, there could be a bargain here. Just be aware that Hertz, as we’ll soon see, is an imperfect investment.
Benefiting from the Recovery
If the surge of Covid-19 in early 2020 wrecked Hertz, then the post-pandemic recovery might save the company. Or at least, a resurgence in travel seems to have benefited Hertz, as evidenced by the company’s third-quarter 2021 financial results.
Admittedly, there were some definite bright spots in the data. For instance, Hertz recorded $2.23 billion in revenues, representing a whopping 76% year-over-year improvement.
Hertz’s bottom-line result was also encouraging, as the company earned $571 million in third-quarter 2021 profits. That’s certainly much better than the $222 million earnings loss reported in the year-earlier quarter.
On top of all that, Hertz achieved a 39% margin for the third quarter, which is a record for the company.
Most likely, these results reflect a rebound in leisure travel as Covid-19 vaccines are now widely available to the public.
Old Habits Die Hard
I hope you enjoyed those positive data points. But now, here’s a piece of news that probably won’t delight many of Hertz’s current investors.
Indeed, some folks might find it troubling that Hertz will likely increase its debt obligations significantly.
Just recently, the company disclosed that it will sell $1.5 billion worth of five-year and eight-year senior unsecured notes. These debt notes will be sold in a private offering, Hertz clarified.
On the positive side of the issue, Hertz may be able to use at least some of the proceeds for “general purposes,” such as marketing and/or upgrading its vehicle fleet.
Here’s the problem. Reportedly, Hertz’s debt totaled $10.12 billion in 2021’s third quarter. The company could put $1.5 billion in proceeds to good use, no doubt about that. However, those senior notes are debt instruments, and they could put Hertz further into an already deep financial hole.
The habit of racking up massive debt is a hard habit to break, it seems.
The Bottom Line
All in all, Hertz presents investors with a mix of good and probably-not-so-good news. On the positive side of things, Hertz is demonstrating strong revenue growth. Yet, the debt problem is rearing its ugly head again.
Therefore, a wise strategy would be to wait on the sidelines and see if Hertz can curb its debt issuance, or whether the company is even willing to do so.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
