Analyzing Bill Ackman's Hertz Investment Thesis

Hertz's Tumultuous Journey

• 💡 Hertz stock surged over 100% after Bill Ackman's Pershing Square disclosed a 19.8% stake, following a period of significant decline.
• 📉 The car rental giant filed for bankruptcy in 2020 and, after re-emerging in 2021, saw its stock price plummet by nearly 90%.
• ⚠️ A major misstep was the 2021 purchase of 100,000 Teslas, which became 20% of its fleet, leading to revenue decline, soaring costs, and substantial unprofitability.

Bill Ackman's Investment Thesis

• 🎯 Ackman began accumulating Hertz shares in October 2024 when the stock was below $3, predicting a value of $30 per share by 2029.
• 📈 This projection implies a potential 4x return from the current price and nearly 10x for Ackman based on his estimated cost basis.
• 📊 His valuation is based on management's near-term targets for Revenue Per Unit (RPU), Daily Operating Expense (DOE), and Depreciation Per Unit (DPU).

Key Financial Projections

• 🔍 Ackman's thesis suggests that if Hertz achieves an RPU of $1,500, DOE of $30, and DPU of $300, it could generate approximately $2 billion in adjusted EBITDA.
• 🚗 The RPU target of $1,500 (from $1,429) is considered achievable with slight improvements in pricing and fleet utilization.
• 🛠️ The DOE target of $30 (from $37) is expected to be met through ongoing fleet rotation, including selling Teslas and older vehicles by late 2025.

Depreciation as a Core Lever

• 💰 The biggest opportunity for improvement lies in DPU, aiming for $300 or less from its 2024 level of $539.
• 🔄 This reduction in DPU is anticipated as Hertz replaces its fleet with lower-priced vehicles that have higher resale values, contrasting with the high depreciation of the Teslas.
• 🇺🇸 An additional "bonus" factor mentioned is the potential for Trump's tariffs to increase used car prices, which could significantly boost the value of Hertz's $12 billion auto assets.

Personal Investment Perspective

• 💬 The speaker acknowledges that Ackman's investment thesis "makes sense" from a financial projection standpoint.
• ❌ However, the speaker states they would not personally buy Hertz stock, viewing it as an investment in a "horrible business" despite the potential for improvement.
• 🌱 The speaker prefers to invest in "better businesses" within the small cap space, suggesting Ackman's large capital necessitates looking at more challenging opportunities.