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”[1] 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.
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[1] 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).