Hertz Global Holdings (HTZ) – Closing Short Position – down 75% vs. S&P down 9%
We put Hertz Global Holdings (HTZ: $5/share) in the Danger Zone on March 12, 2018. At the time, HTZ received a Very Unattractive rating. Our short thesis noted the firm’s falling net operating profit after-tax (NOPAT) and return on invested capital (ROIC), poor corporate governance, and overvalued stock price.
This Danger Zone report, along with all of our research, utilizes our “novel dataset” of footnotes disclosures to get the truth about earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the two-year holding period, HTZ outperformed as a short position, falling 75% compared to a 9% drop for the S&P 500.
HTZ’s fundamentals have improved since our original report. Its ROIC improved from 1% at the time of our report to 2% in 2019 while NOPAT margin increased from 2% to 6% over the same time. However, HTZ is down 68% year-to-date and, despite still being overvalued, this drop in valuation provides a great time to take the gains and close this short position.
Figure 1: HTZ vs. S&P 500 – Price Return – Successful Short Call
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on April 3, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).