Shares of Hertz Global Holdings (HTZ) experienced a significant surge last month following the announcement that billionaire Bill Ackman, head of Pershing Square Capital Management, had acquired a 19.8% stake in the car rental company, which has struggled in the stock market.
Ackman explained his investment strategy in a post on X, stating his interest in Hertz’s highly leveraged automobile asset portfolio, which he believes is undervalued due to previous issues stemming from the purchase of too many Teslas.
He suggested that more rational competitive behavior in an oligopoly, along with the resolution of the Tesla situation, a new management team with a promising turnaround strategy, and an appealing capital structure, could result in a substantial return on investment.
The stock saw a remarkable increase following Ackman’s announcement, finishing April 73% higher according to S&P Global Market Intelligence data.
Towards the end of the month, the stock’s rise appeared to slow, potentially indicating that it may have been overbought as a reaction to Ackman’s stake.
The car rental industry has historically posed challenges for investors, and Hertz has not performed well over time. The company faced bankruptcy during the pandemic and its market cap was around $1 billion before Ackman’s involvement. Although not currently profitable, analysts anticipate modest profits by 2026.
Investing in a car rental stock amid signals of a potential U.S. recession is risky, as the industry is highly cyclical and sensitive to leisure and business travel, which often face cuts during economic downturns.
Ackman also highlighted Hertz’s fleet of 500,000 vehicles as a potential advantage in a market where auto tariffs could raise used car prices. However, this advantage depends on Hertz not needing frequent vehicle replacements, which is not the case.
Tariffs are likely to pose a challenge for Hertz as they could lead to increased depreciation expenses due to higher costs for used cars.
Airlines and Airbnb have already indicated a slowdown in travel demand, which could be a considerable obstacle for an already unprofitable and slow-growing company like Hertz.
Hertz is set to report its first-quarter earnings on May 12, which could lead to stock movement. If the results do not meet Ackman’s optimistic projections, the stock might decline.
